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Fitch Affirms Jacksonville Aviation Authority, FL's $157MM Revs at 'A'; Outlook Stable
CHICAGO, Apr 02, 2012
(BUSINESS WIRE) -- Fitch Ratings affirms its 'A' rating on the Jacksonville Aviation Authority, FL's (JAA or the authority) outstanding $157 million of series 2003 and series 2006 airport revenue bonds for Jacksonville International Airport (JAX or the airport). The Rating Outlook is Stable.
KEY RATING DRIVERS:
--Midsized Origination/Destination (O&D) Enplanement Base with Some Volatility: Nearly all of the airport's 2.8 million enplanements consist of O&D traffic; however, traffic has been uneven in recent times. Traffic levelled off in fiscal 2011 [ended Sept. 30] (up 0.2%), following three consecutive years of enplanement declines, but is down 3% through the first five months of fiscal 2012. The airport benefits from a diverse group of carriers serving the airport, with no one carrier representing more than 28% of the market.
--Moderate Cost Recovery Framework: JAX operates under a supportive hybrid airline use and lease agreement, which is commercial compensatory in the terminal and residual on the airfield. Under the current agreement, the airport has maintained a recent history of competitive cost per enplanement (CPE) ($6.47 in fiscal 2011). The airline agreement expires in September 2012 and is expected to be replaced with a fully residual agreement.
--Flat-to-Decreasing Debt Service Profile: JAX's annual debt service requirements are largely flat through fiscal 2018 at approximately $17.6 million, but decline sharply to about $10 million by fiscal 2020 and to $7.2 million in fiscal 2026. Over 80% of the outstanding debt is fixed rate with the remaining variable rate component ($37 million bank note (not rated by Fitch) synthetically fixed through an interest rate swap with Compass Bank (rated 'A-'/Negative Outlook by Fitch).
--Manageable Leverage and Adequate Liquidity: The airport's current leverage is reasonable given its cash-flow generation profile, there is no plan for additional debt in the near term, and debt per enplanement of $69.60 and net debt-to-cash flow available for debt service of 3.95 times (x) are consistent with the current rating level. Further, debt service coverage has remained relatively stable at 1.83x or greater and is projected to remain at or near similar levels in the near term and JAX's solid balance sheet liquidity, including unrestricted cash and investments equating to 390 days cash on hand (as of September 2011), provides additional financial flexibility.
--Modest Capital Program: Through fiscal 2016, the airport is expected to have a manageable capital program that totals $144.3 million, with nearly half of the funding coming from general airport funds. Fitch notes that the increased reliance on airport funds and decreased reliance on passenger facility charge (PFC) revenues could impact the airport's financial flexibility or ability to complete projects should performance fall short of expectations.
WHAT COULD TRIGGER A RATING ACTION:
--Material changes to the airport's enplanement levels;
--Increased reliance on PFC revenues to preserve coverage levels and maintain a low airline cost structure; and
--Additional leverage that would materially increase the debt metrics or meaningfully limit coverage levels.
All airport revenue bonds are secured by a parity senior lien on the authority's net operating revenues as well as transfers from the surplus fund and certain available PFC revenues deposited into the operating revenue fund. The authority has covenanted to transfer all available PFC revenues from the PFC fund into the operating revenue fund no later than the 25th day of each month but is limited to no greater than 1.25x of the PFC-eligible debt service. The PFC fund is currently pledged for payment on a portion of principal and interest on the series 2006 bonds. Holders of the other debt obligations do not have a claim on deposits in the PFC fund.
JAX's traffic, while remaining level in fiscal 2011 at 2.8 million enplanements, has historically been volatile, down a combined 12.8% over fiscal 2008 through fiscal 2010 as a result of the recession. Further, with enplanements down again fiscal year-to-date (3% decline for the five months ended February) it is uncertain whether enplanements have yet to bottom out. Nevertheless, the airport's importance to the north-eastern Florida region, coupled with Jacksonville's long-term growth prospects and limited competition from neighbouring airports, provides support for travel demand into the future. Additionally, the diverse set of carriers serving JAX provides a relatively stable base of air service without having to rely on the scheduling decisions of the tenant carriers. Southwest and Delta continue to be the largest carriers serving JAX, with market shares of 27.8% and 24.1% in fiscal 2011, respectively.
The airport currently operates under a hybrid rate setting structure, which Fitch notes has historically provided for relatively stable financial results and modest airline costs. Still, there have been recent increases to the CPE, with a forecast of $6.75 for fiscal 2012 as compared to $5.30 in fiscal 2010. The airport effectively utilizes certain non-operating revenues, including PFC receipts, to subsidize debt service obligations. Historically, the airport's coverage level of total debt service has exceeded 1.83x and Fitch's base case projects coverage to remain at or near that level in the near term. Fitch notes, however, that PFC revenue transfers currently account for nearly 50% of debt service obligations and will be essential to preserving comparable coverage levels in the next several years. As a result, credit pressures may develop should enplanements and non-airline revenues fall short of expectations and JAX's financial flexibility could be limited. Partially mitigating this risk is the airport's solid balance sheet reserves and unrestricted cash and investments equating to over a year's worth of liquidity.
The current airline use agreement expires in September 2012 and a new full residual agreement under consideration is not likely to have an impact on JAX's financial or credit fundamentals. The new agreement is expected to have a five year term.
Presently, less than half of the airport's total operating revenues are derived from the airlines, while parking and concession revenues each contribute approximately 25% of the authority's operating cash flow. Overall, operating revenues have remained fairly resilient, growing at a five-year CAGR of 1.4%, despite an enplanement CAGR of -1.0% over that same period. However, operating expenses grew by 8% in fiscal 2011 and have outpaced operating revenues with a five-year CAGR of 2.5%. Management budgeted one more year of elevated expense growth (4.8%), before levelling off in the 3% range. As a result, the operating margin in fiscal 2011 dropped to 32.7% and is forecast to continue a slow decline in the near term.
JAA indicated that it has a moderately sized capital program through fiscal 2016, totalling $144.3 million. The capital program is expected to be funded by airport funds (45%), grants (35%), PFCs (12%), and other sources (8%). This allocation is a substantial shift from last year, with PFC funding decreasing from 28% and airport funds increasing from 33%. Fitch notes that financial flexibility could be hurt and/or projects have to be delayed should enplanements and financial performance fail to meet management's expectations.
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 & Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for Airports' (Nov. 28, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
SOURCE: Fitch Ratings