Fitch affirms RIAC bonds as ‘A-’ but ‘outlook negative’

DECLINING PASSENGER TRAFFIC at T.F. Green Airport caused Fitch Ratings to put a negative outlook on the R.I. Airport Corporation's $261M in general airport revenue bonds despite their 'A-' rating.
Posted 5/25/12

NEW YORK – The $261 million in senior lien general airport revenue bonds issued by the R.I. Economic Development Corporation were given an “outlook negative” by Fitch Ratings at the same time as the global rating agency affirmed their “A-” rating.

A Fitch report said that T.F. Green Airport, which serves a primary origination and destination base of 1.95 million enplanements, has been influenced by the competitive New England airport environment.

T.F. Green has seen six consecutive years of enplanement declines.

The Fitch report expressed concern over an above average concentration risk with Southwest Airlines, which represented 51 percent of the airport’s enplanements in the 2011 fiscal year – ended June 30.

The airport’s hybrid use and lease agreement, which expires in 2015, includes both a revenue sharing component and strong coverage protection.

The Fitch report said that strong cost recovery terms have led to a rising cost per enplanement and that price flexibility is “somewhat constrained by nearby competition.”

All of the airport’s debt is in fixed-rate mode with a level to declining amortization profile, according to Fitch. The rating agency also called the airport liquidity “healthy” and its leverage “moderate.”

The negative outlook grade reflects T.F. Green’s elevated risk profile, resulting from multi-year traffic declines since 2005 peak levels as well as increased activity from low-fair airlines at Boston’s Logan Airport.

“The first nine months of fiscal 2012 - through March - have shown signs of stability, with a marginal 0.1 percent increase over the same period in fiscal 2011,” said the report.

Airport management has indicated that low-cost carriers have expressed interest in adding service at Green within the next year, according to Fitch.

If RIAC is able to measurably boost its enplanement base with an increase in low-cost carriers, “a return to stable outlook may be warranted,” said the report.

Fitch warned that further erosion in traffic volumes, the issuance of additional parity debt and the inability to manage operating expenses relating to RIAC’s non-commercial outlying airports could negatively affect a rating change.

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Southwest tanked in April - down 8.41 percent from last year. May will probably show more of the same because the Stage III instrument landing system is down causing diversions and cancellations. It will not be totally on line for months. RIAC is doing a good job controlling its expenses but is still paying executives very high salaries for an operation of this size.

Fitch Ratings presents a clear warning that RIAC will be challenged to float a bond for the proposed runway extension unless traffic counts increase substantially. The problem is the opposite is happening and that has been going on for six years.

The 38 Studios fiasco will probably have an impact on EDC's ability to float bonds for its subsidiary RIAC.

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