2009-12-10 00:19:37 -

Fitch Ratings affirms the 'A-' rating on the Maryland Transportation Authority's (MdTA) series 2002 airport parking revenue bonds. Fitch also affirms the 'A' rating on the MdTA's outstanding series 2003 variable-rate passenger facility charge (PFC) revenue bonds. The Rating Outlook on both series of bonds is Stable.

The MdTA is an independent agency of the state of Maryland responsible for the planning, financing, construction, and operation of toll-producing transportation assets of the state. MdTA in this instance functions as a conduit issuer for the Maryland Aviation Administration (MAA), a unit of the Maryland Department of Transportation (MDOT), which holds a lease for and operates Baltimore Washington International Thurgood Marshall Airport (BWI, or the airport). The series 2002 and 2003 bonds collectively

were issued for capital improvement projects at the airport, all of which have been substantially completed.

The ratings on the series 2002 and 2003 bonds reflect the low leverage on both liens, flat debt service profiles, the significant passenger growth seen at the airport over the last decade with relative resilience to the recent economic downturn, and the overall economic strength and above-average wealth levels of the service area, which ranks as the nation's fourth largest metropolitan area. The Stable Rating Outlook is based on the wealth of the Baltimore-Washington DC service area and its ability to sustain consistent traffic patterns over the near- to medium-term, and on expected high levels of debt service coverage, even under stressed scenarios.

These strong credit factors are partially offset, in the case of the series 2002 parking revenue bonds, by competition from off-airport parking sources, passenger volatility given the broader downturn in the aviation industry, and the risk of a potential bankruptcy of the private parking concessionaire that could disrupt cash flows. Credit concerns for the series 2003 PFC revenue bonds center on the narrow revenue stream supporting the bonds and the proximity of Dulles International and other competing airports which have a proven ability to draw important leisure traffic away from BWI, and on the concentration risk associated with Southwest Airlines (Southwest) which comprises about half of total enplanements.

After a period of rapid passenger growth in the 1990s which saw demand at BWI more than double from 4.2 million enplaned passengers in fiscal (FY) 1993 to a peak of 10.3 million in FY2004, passenger growth in recent years slowed with an average growth rate of 1% between FYs 2004 and 2009. Enplanements peaked in 2008 at 10.6 million in the face of the national economic downturn, a 3.3% increase over 2007. FY 2009 enplanements fell 5.6% to 10.6 million. However, a rolling average of enplanements indicates a possible inflection point in May 2009.

Enplanements in July through September are up an average of 8.5% over last year. The airport continues to serve a solid origination and destination base of 83% of total enplanements with an average trip distance of about 700 miles. Approximately 2% of enplanements are international.

BWI competes successfully with nearby competitors Dulles International Airport (Dulles) and Reagan National Airport (Reagan) for short- and medium-haul service due to Southwest's presence and attraction of other low-cost carriers such as Air-Tran Airways (Air Tran). Southwest is the airport's primary carrier, occupying 20 of the airports 69 gates and comprising 51% of total enplanements as of August 2009. Air Tran, the airport's second-largest carrier with an 18% market share as of August 2009, has grown service substantially since initiating service at BWI in 2002. In addition to new flights to Indianapolis and New Orleans, Air Tran has recently focused on the Caribbean with flights to Cancun, Mexico and new flights expected to Montego Bay, Jamaica and Nassau in the next quarter.

BWI recorded a $9.28 cost per enplaned passenger in fiscal 2009, below both Dulles and Reagan. The airport's favorable cost structure serves to offset concern regarding the presence of several competing airports in the service area as it makes the airport an attractive option for low-cost airlines seeking to expand service into the Baltimore-Washington area. Although Southwest comprises about half of all enplanements at the airport, concentration risk is mitigated by the fact that 83% of enplanements are origination and destination based and not the result of hubbing operation by Southwest.

Additions to the airport's parking stock combined with a large passenger base has yielded strong cash flow from parking operations, with debt service coverage of 2.4 times (x) in FY 2009, well above the rate covenant of 1.25x. Debt service is essentially flat at $20.7 million in FY 2009, increasing gradually to MADS of $20.8 million in FY 2016.

Coverage is expected to remain above 2.0x even with stagnant enplanement growth, and no increases in parking rates. For the airports 25,200 parking spaces, parking occupancy levels average approximately 47%. The five operators of off-airport parking lots totaling 6,800 spaces have lower parking rates and occupancy rates of 48%. A new parking rate structure that would adjust various rates throughout the system has been proposed to MDOT and would go into effect in January 2010. The contract with the parking concessionaire, Maryland Parking Limited Partnership (MLPL), expires in December 2009 and the MAA is preparing a request for proposal for the replacement contractor. Increased off-airport parking competition which tempers the MAA's pricing ability, volatility in the leisure passenger market, and bankruptcy risk from the private parking operator remain credit risks.

The narrow revenue stream and limited flexibility provided by PFC receipts represents the primary credit risk related to these bonds. As the airport currently levies the PFC at the maximum rate allowed by federal law, total revenues generated from the charge are dependent on the level of passenger traffic at the airport. PFC collections for FY 2009 totaled approximately $40.8 million and would provide an estimated 3.97x coverage of debt service on the series 2003 bonds. Assuming the maximum possible interest rate of 15% on the variable-rate bonds with MADS of $16.2 million occurring in FY 2010, current revenues would provide 2.5x coverage. Even with stagnant enplanements, coverage would remain well above 2.0x through the maturity of the bonds in 2013. Fitch estimates that the airport could sustain a decline of approximately 60% in PFC revenue from the fiscal 2009 level and meet its debt service obligations. Furthermore, MAA management has demonstrated conservatism in its historical leveraging of PFC revenues and does not expect to significantly lever down this revenue stream.

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Fitch Ratings, New YorkBrian Taylor, CFA, +1-212-908-0620Mike
McDermott, +1-212-908-0605orCindy Stoller, +1-212-908-0526
(Media Relations) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com