Fitch Ratings | Press Release
Fitch Rates Charlotte, NC Airport Revs 'A+'; Outlook Stable
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Ratings
12 Oct 2011 2:13 PM (EDT)
Fitch Ratings-New York-12 October 2011: Fitch Ratings assigns an 'A+' rating to Charlotte, North Carolina's (the airport)
$76 million series 2011A senior lien fixed-rate airport revenue bonds and $36 million series 2011B senior lien fixed rate
airport revenue bonds and affirms the airport's $547 million senior lien general airport revenue bonds at 'A+'. The Rating
Outlook is Stable.
Key Rating Drivers:
Stable Traffic Base: The airport enjoys a stable-to-growing travel base benefiting from its strategic location and status as a
primary US Airways (IDR 'CCC' by Fitch) hub. Charlotte handles over 19 million enplanements, of which approximately
75% are connecting passengers. The airport's large enplanement base has risk attributes associated with US Airways'
presence and scheduling decisions due to the carrier's dominant market position at over 85% of the total passenger
volumes.
Strong Revenue Profile: The airport's hybrid airline use agreement framework allows for strong debt service coverage
metrics at or above 3.0 times (x), and the ability to accumulate exceptional liquidity while still translating into an extremely
competitive cost per enplaned passenger (CPE) levels at or under $1.00.
Conservative Debt Profile: The airport's debt structure consists of 83% conventional fixed-rate debt with level-to-declining
debt service.
Extremely Low Leverage: This favorable attribute is demonstrated by net debt/cash available for debt service (CFADS) at
or near 1.50x. Balance sheet strength is also derived from approximately 2,348 days cash on hand as well as a belowaverage $37 long-term debt per enplanement.
Manageable Capital Plan: The airport has a manageable and demand-driven capital plan which is currently estimated at
approximately $442 million. Funding is expected to come from a mix of federal grants, additional airport borrowings, and
pay-go surplus cash flow.
What Could Trigger A Rating Action:
--Inability to maintain the current traffic base and commitment from the airport's dominant carrier, US Airways. Traffic
changes can also be affected by uncertainties in the economy and the air travel industry;
--Material changes to the airport's overall airport cost profile or a weakening trend in debt service coverage that is below
historical levels.
SECURITY:
The bonds are secured by a net revenue pledge from operations of the airport, along with additional accounts held under
the resolution.
CREDIT SUMMARY:
Passenger traffic growth at the airport has been strong in recent years and continues to outperform prior traffic forecasts.
Charlotte's traffic base achieved a record of more than 19 million enplaned passengers in fiscal 2011, benefiting on both
the O&D and connecting traffic components. Connecting passengers, which make up the largest component of the
airport's volume, have increased 13% year to date in fiscal 2011 as US Airways continues to focus its domestic hubbing
through the airport. O&D enplanements have also showed positive growth coming out of the downturn and are up
approximately 6.4% when compared to fiscal 2010. Total enplanements grew on average by 7.7% annually since 2006
while average annual seating capacity increased by 2.1% over the same period. Continued optimistic performance is
expected as the airport forecasts overall enplanements to grow by a conservative 1% per annum through fiscal 2017.
With the benefit of strong business performance, debt service coverage continues to remain very comfortable at or above
the 3.0x range. In fiscal 2011, net operating revenues of approximately $76 million generated a 3.56x debt service
coverage ratio (DSCR). Adjusted debt service coverage, reflecting the addition of passenger facility charges (PFCs) to net
operating revenues instead of a direct debt service offset, generated a DSCR of 2.07x, slightly down from 2.30x in fiscal
2010. In fiscal 2012, the airport expects indenture-based coverage to be 3.04x and approximately 2.0x when PFCs are
treated as available revenues. Going forward, the airport expects to generate coverage levels in line with historical
performance, hitting a low of slightly under 3.0x in fiscal 2013.
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Fitch Ratings | Press Release
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The airport's low debt burden results in extremely competitive CPE levels. Historically, the airport's CPE has been
consistently under $1.00, ranging from $0.67 to $0.90 during three most recent fiscal-year periods through 2011. In fiscal
2012, the airport expects to generate a very competitive $0.93. Longer term forecasts indicate only a marginal increase to
near the $1.0 level through fiscal 2017. Internal liquidity continues to be a key credit strength, with the airport maintaining
approximately 2,348 DCOH as of fiscal 2011.
Despite the airport's extremely healthy fiscal strength and flexibility, Fitch does not believe upward rating movement is
likely given the traffic characteristics currently in place of high single-carrier concentration and dependence upon
connecting traffic. Still, Fitch notes that the airport is also well-positioned to maintain greater credit stability even under
adverse conditions with regard to adverse scenarios for carrier service or connecting traffic. Specifically, if US Airways
were to measurably restructure its route network and de-emphasize Charlotte airport as a primary connecting hub, there
would likely be an immediate effect on the airport's operations. US Airways alone handles approximately 60% of the total
O&D traffic base and the timing and possibility for backfill may be limited. However, the airport's strong internal liquidity,
modest capital demands, flexibility to increase PFC charges, and low cost structure position the airport well to deal with
such a challenge.
Under a stress case scenario reviewed by Fitch that assumes a 100% reduction in US Airways' connecting activity, airline
costs could be significantly higher, nearing the $4.00 to $5.00 per passenger range. The stress scenario also indicates that
coverage would fall to near the low 2.0x range, even when assuming management is taking steps to increase the airport
PFC rate to $4.50 and apply unspent PFC balances to reduce annual debt service requirements. Thus, while the airport
would continue to rely heavily on PFC collections to support a low cost structure, long-term traffic depressions may limit
the airport's utilization of the PFC to offset debt service requirements. Similarly, lower passenger levels would likely affect
the revenue sharing benefits with the signatory airlines.
The airport is owned by the city and operated as a self-supporting enterprise fund. The airfield and terminal occupy 6,000
acres located seven miles west of the central business district. An appointed aviation director manages airport operations
and capital improvements.
Contact:
Primary Analyst
Vanessa Roy
Associate Director
1-212-908-0508
One State Street Plaza
New York, NY 10004
Secondary Analyst:
Emma Griffith
Director
1-212-908-1124
Committee Chair:
Seth Lehman
Senior Director
1-212-908-0755
Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526, Email: cindy.stoller@fitchratings.com.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the
issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Rating Criteria for Infrastructure and Project Finance - 16 Aug. 2011;
--Rating Criteria for Airports- Nov. 29, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
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