Fitch Rates Miami-Dade County $600MM Aviation Revs 'A'; Outlook Stable
2008-05-22 00:53:41 -
- Fitch Ratings assigns an 'A' rating to Miami-Dade County, Florida's (the county) approximately $600 million aviation revenue bonds series 2008 A (subject to the federal alternative minimum tax (AMT)) and B (non-AMT). The bonds are secured by net revenues of the county's Port Authority Properties (PAP), the main asset of which is Miami International Airport (the airport). Proceeds will finance a portion of the airport's capital improvement program (CIP) and refund outstanding commercial paper. Fitch also affirms the rating on the county's approximately $3.2 billion of outstanding aviation revenue bonds at 'A'. The Rating Outlook is Stable.
The 'A' rating is based upon the airport's role as the nation's leading international gateway to the Caribbean and Latin America; significant cargo operations that offset costs normally borne by passenger carriers alone; strong demand for air service from the local market; a diverse mix of domestic and international passenger and cargo airlines; and enhanced management oversight of the capital improvement program.
Credit concerns center on the size and complexity of the airport's $6.2 billion CIP and resultant use of leverage and high cost structure; American Airlines' dominant share of the market, which leaves the airport vulnerable to the carrier's future routing decisions; significant competition within the south Florida market for domestic passengers; and the airport's reliance on international travel for a considerable proportion of total passenger traffic.
The Stable Outlook reflects the airport's continued progress on the CIP which remains within revised budget and schedule parameters; recent gains in enplanement activity; and sound financial performance. While approximately 90% of the program has now been bid, Fitch recognizes that the risk of additional cost increases remains due to the tight labor market in South Florida and the world wide demand for construction related commodities, as well as potential for mandated security enhancements and the airport's susceptibility to tropical storms.
The airport served 16.7 million enplaned passengers in 2007, reflecting a 2.5% average annual growth rate from 2002. The airport recorded strong gains in 2007, with domestic passenger traffic increasing 2.7% and international traffic up 4%. Most of these gains reflect the strength of the economy in 2007, particularly growth in Latin America and the favorable exchange rate that promotes international travel to the United States. The airport's feasibility consultant projects enplanements will increase at a 2.5% average annual rate through 2018.
The airport is served by a diverse mix of airlines, including 15 scheduled domestic carriers, 31 scheduled foreign flag airlines, and 25 all cargo carriers. However, American and regional affiliate, American Eagle, accounted for approximately 68% of the airport's total enplanements in fiscal 2007, up from 54% in 2001. This heightened level of concentration represents a credit concern, as the airport's financial performance becomes increasingly influenced by the operational decisions of a single carrier. This concern is somewhat mitigated by the number of carriers serving the airport, many of whom Fitch believes would act quickly to capture market share in response to any decline at American.
The airport recorded improved financial operations over the past several years, as operating revenues increased at a 3% average annual rate since 2001, while operating expenses (before depreciation) declined at a 1.4% pace. Coverage of debt service provided by net revenues equaled 1.46 times (x) in fiscal 2007, and was comparable to the 1.43x recorded in fiscal 2002. Based on the enplanement forecast and the financial structure of the airport, and allowing for $1.7 billion in additional debt through 2010, the consultant projects coverage from net revenues to exceed 1.3x through 2018.
The airport's $6.2 billion CIP is designed to meet the airport's needs through 2018. The airport plans to finance the program through a mix of sources including federal grants, state grants, passenger facility charge (PFC) receipts, and approximately $1.7 billion in additional general airport revenue bonds. Based on the scope of the capital plan and incorporating the enplanement forecast, the consultant projects that the airport's cost per enplaned passenger (CPE) will rise to $35.05 in fiscal 2018 up considerably from $16.32 in fiscal 2004.
While the airport's forecasted CPE is above that of comparable domestic airports and remains an ongoing credit concern, a portion of the airport's costs represent higher capital expenditures for international gates, which are offset by higher yields attained by the airlines for international travel. Additionally, Fitch recognizes the conservative traffic growth assumptions which underpin this forecast.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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