S&P - Public Finance Criteria (2007). - The Global Clearinghouse

TransportationAirport Revenue BondsIn recent years, growth and expansion of newentrants to the airline industry once dominated byestablished network carriers have demonstrated theimportance of providing aviation infrastructure,and the dynamic nature of the airline businessmodel. While airports have proven quite resilient,the sector is obviously directly exposed to developmentsin the airline and travel industries. Lookingforward, the airlines’ own financial profile isexpected to continue to be cyclical, with competition,alliances, bilateral agreements, rising laborand fuel costs, uncertainties and instability seen ascommon occurrences.With some interruptions, passenger traffic hasdemonstrated steady growth, mirroring economictrends while imposing significant capital requirementson airport operators. After the U.S. deregulationof the airline industry, discretionary travel, andbusiness demands stressing mobility and timelinessmake air travel and airports essential to, and abarometer of, the nation’s economy.Standard & Poor’s Ratings Services approach torating airport revenue bonds reflects the growingmaturity of the national and international airportnetwork with a focus on passenger demand—-bothlocal and connecting—that drives aeronautical andnonaeronautical revenue, as well as an airport’s rolein the overall aviation system. Standard & Poor’shistorically has treated U.S. general airport revenuebonds as a special type of utility debt, instead of aslease obligations of various carriers. The strongbusiness position of most airports, public sectorownership and essentially closed flow of funds,along with the existing regulatory environment thatrestricts the use of airport revenues to airport purposeshave allowed strong investment-grade ratings,relative to those of the airlines.Service Area Characteristics And Air Traffic DemandStandard & Poor’s analysis begins with understandingthe foundation of air passenger service and theunderpinnings of the regional economy that producesthe existing and future demand for aviationinfrastructure. The definition of a service or catchmentarea of each airport varies, depending onregional characteristics. An airport’s reach frequentlyextends beyond its city’s limits or entire metropolitanarea, adding diversity to its user base whilealso exposing the airport to competition. Factorsexamined by Standard & Poor’s include historicaland projected population growth, employmentexpansion and mix, as well as wealth and incomelevels are important in the economic evaluation.Historical airport utilization trends versus those ofthe nation are reviewed. An airport facility demonstratingstable passenger trends during a recession isgenerally stronger than one that grows spectacularlyin good times, but experiences greater trafficlosses during a downturn.The importance of local economic factors to arating depends, in part, on the nature of the airport’straffic. If most passengers are of the originationand destination (O&D) nature, the localeconomy dictates the level of service demand.Conversely, an airport used heavily for connectingtraffic depends less on service area economics.Substantial transfer traffic is usually vulnerabilitybecause the choice of connecting facility is notmade by the passenger, but dictated by the airlineand thus related more to a carrier’s viability androute decisions.However, each airport has mitigating factors thatcould, in some cases, effectively offset this concern.These include:■ The importance of the facility to the overall systemof U.S. airports;■ Favorable geographic situation, evidenced by a“natural” hub location and the absence of viabletransfer alternatives.■ The level of connecting traffic;■ A balanced and growing economy that may needadditional O&D airport capacity currently usedfor transfers;■ Airfield capacity and attractive facilities intowhich other carriers would expand service;■ Low debt burden and carrying costs;■ The financial strength of carriers accounting forthe greatest amount of connecting traffic, and theircommitment to the airport or city including theirlevel of infrastructure investment in the region;■ The role of the facility in the dominant carrier’sroute network; and■ Legal provisions that allow maximum flexibilityin charging rates to carriers on an as-needed basis.www.standardandpoors.com131