NEW YORK - (Business Wire) Fitch Ratings affirms the 'AA' long-term underlying rating on the Metropolitan Washington Airports Authority's (the authority) approximately $3.9 billion of outstanding airport system revenue bonds. The authority is currently converting its outstanding $70.5 million series 2003D-1 and $70.5 million 2003D-2 from auction rate mode to variable rate demand obligations (VRDOs) supported with Letters of Credit (LOC) from Wachovia Bank and Regions Bank, respectively. Fitch expects to assign short-term ratings to the 2003 variable rate bonds based on LOCs from Wachovia and Regions Bank closer to the sale date. The series 2003 bonds will convert from auction rate securities to VRDOs on March 13, 2008 and have a final maturity of Oct. 1, 2033. The Rating Outlook is Stable.
The 'AA' rating reflects recent service additions at Dulles in 2007, which strengthens its role as an international gateway airport, the sustained strong and stable financial operations of the airports, an improving concessions program that should enhance its financial flexibility, the strong and growing air trade area, and the demonstrated ability of management to guide a complex capital program. The high ratings also capture its competitive position and complementary service offerings of both Dulles and National and conservative forecasting practices that demonstrate sound coverage of debt service through the capital program. Primary credit concerns include the moderate airline concentration risk at both authority airports and the planned significant future issuance of debt to support of the Capital Construction Plan (CCP) and the resultant rising costs passed onto the airlines.
Enplanements rebounded strongly at Dulles in 2007, after a significant decline in activity following the January 2006 demise of Independence Air (Independence) which had served to stimulated demand in the market through its aggressive pricing strategy. The initiation of service by Independence, the former Atlantic Coast Airways and operator of United Express service at Dulles, in 2004 spurred a 60% increase in enplanements from 2003-2005. With Independence leaving the market in 2006, enplanements declined by 15% for the year. However, as Independence identified a level of demand at the airport, other carriers including United Airlines (United), jetBlue Airways (JetBlue) and Southwest Airlines (Southwest) responded to their departure by initiating or adding service. As a result, Dulles experienced an 11.9% gain in enplanements in the first six months of 2007 over the same corresponding time period in 2006.
United remains the largest carrier at Dulles, representing 62% of enplanements. The carrier has acted to increase international service at the airport, exploiting its dominant position in the nation's capital with adding service to Beijing, China; Rome, Italy; and Rio de Janerio, Brazil in 2007. Foreign carriers have also increased service to Dulles, with Iberia Airlines initiating service to Madrid, Spain; Aer Lingus serving Dublin, Ireland; Qatar Airways serving Doha, Qatar; and Copa Airlines serving Panama.
National has also experienced a significant gain in enplanements, with 2006 traffic volume up 30% from 2003 as carriers used larger aircraft, experienced higher load factors, and were able to add a limited number of flights. Enplanement activity in 2007 at National was stable, as airport activity is restricted by federally imposed flight limitations. USAirways remains the largest carrier at National, with 39% of the market in 2006. While the concentration levels of United and USAirways present some credit concern, the level of concentration is less pronounced when viewed on an overall basis, as United represented 37.4% of total system enplanements in 2007 while USAirways accounted for 18.0%.
The authority consistently generates healthy financial results, with an operating ratio near 40% on an annual basis. Debt service coverage is consistently well above the rate covenant of 1.25 times (x), with the authority generating coverage of 1.78x for fiscal 2006 (Dec. 31 year-end). Similarly, in 2007 the authority expects debt service coverage to be 1.72x and remain above 1.75x through 2008.
The authority is in the midst of its $7.1 billion CCP, which covers the period from 2001-2016. Of this figure, $2.9 billion has already been spent. Major elements of the program include a new runway and automated people mover at Dulles; plans for a new Tier 2 concourse at Dulles, for which the authority is negotiating with United; and various airfield improvements and the rehabilitation of historic Terminal A at National. The authority expects to issue an additional $3.2 billion in debt in support of the program through 2015. In 2007, signatory airline costs per enplaned passenger (CPE) reached a maximum of $23 at Dulles and $19 at National, metrics which are average for similarly sized facilities. In addition, Fitch recognizes the modular nature of the CCP, which allows for cancellation or deferral of projects if needed.
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Fitch Ratings
Vanessa Roy, 212-908-0508 (New York)
Peter Stettler, 312-368-3176 (Chicago)
Cindy Stoller, 212-908-0526 (Media Relations, New York)
