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DFW Airport Continues Cutting Costs

DALLAS - With airlines under unprecedented financial stress, Dallas-Fort Worth International Airport is continuing to cut costs to help its tenants survive, officials said yesterday.

Under a $640 million budget adopted by the DFW board, spending will remain flat, despite rising costs to the airport, said chief financial officer Chris Poinsatte. Airport management cut $23 million in spending to counter an equal increase in costs, he told the board.

"Management has been proactive to minimize the impact of the recent airline situation on DFW's rates, fees, and charges during fiscal year 2008," Poinsatte said. "DFW has a strong cash position and can pay for new capital projects without impacting the airline rate base. Many of these projects lead to direct cost savings for the airlines."

Part of the airport's cost savings could come from plans to refund all or part of $1.7 billion of bonds eligible for refunding in the 2009 fiscal year that begins Oct. 1. Of that amount, $622 million of airport bonds carry rates of 5.75% or higher, Poinsatte said.

"There is a risk rates will rise and refunding may not be financially beneficial," he said. "If rates stay where they are today, we have an opportunity to save some money."

Among the other ideas for lowering costs is closing part of a concourse. DFW has five, including the new Concourse D serving international carriers. A section of one of the other four might be mothballed, Poinsatte said. But recent news reports that the airport might close an entire concourse are incorrect, he added.

DFW is the lowest cost hub for its chief tenant, American Airlines, headquartered near the south entrance to the airport, Poinsatte said. Even though American lost two planes in the Sept. 11, 2001 terrorist attacks and a third shortly afterward in an unrelated crash in New York, the carrier's financial situation is seen as even more perilous now.

"Nine-eleven was bad, but it was temporary," Poinsatte said. "The high fuel price impacts the whole future of the aviation industry."

Standard & Poor's last week lowered its ratings on American Airlines and parent AMR Corp., citing large losses expected for the Fort Worth-based companies through next year.

The agency also lowered debt ratings on Northwest Airlines Corp., UAL Corp., and its United Airlines subsidiary amid lofty fuel prices that have made it nearly impossible for hub-and-spoke carriers to operate profitably.

"The downgrades reflect expectations for heavy losses and, at best, reduced cash flow in the face of record-high fuel prices," analysts wrote.

American's corporate family rating fell to B-minus with a negative outlook. Senior bank debt was rated B-plus, while senior unsecured debt was rated CCC-plus. Recovery ratings were set at 1 on the senior-lien debt, indicating a 90% or better chance that lenders will recover their investments, and 5 on the unsecured debt, indicating a 10% to 30% chance of recovery.

Last month, Moody's Investors Service placed American's parent AMR Corp. under review for a possible downgrade on $1.9 billion of debt. The corporate family rating currently stands at B2. American revenues also back a portion of tax-exempt revenue bonds at DFW.

"Cash and cash equivalents of approximately $4.5 billion at March 31, 2008 is robust when compared to the absolute level of cash held by the other network carriers," Moody's analysts noted. "Nonetheless the company's ability to sustain its current liquidity profile will likely be pressured in light of a meaningful step-up in debt scheduled to mature during 2009 of about $1.2 billion, along with ongoing pension obligations and scheduled aircraft deliveries."

While American remains one of the few airlines to avoid bankruptcy after Sept. 11, 2001, the carrier is navigating an environment that has never posed more risk to the industry, according to most experts.

Standard & Poor's sees chances of a total liquidation of a major carrier if fuel costs and the economy worsen.

"Should a Chapter 11 filing occur, however, we do see an overall greater risk of liquidation for all U.S. airlines than in past filings (as in those following the attacks of Sept. 11, 2001)," analysts wrote. "In some cases, there will be less left to fix."

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