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Fitch Report Glum on Airports, Toll Roads

WASHINGTON - Airports and toll roads face a more uncertain future than other transportation sectors, Fitch Ratings said in a special report due out today. The agency revised its outlook for both airports and toll roads to negative from stable, and suggested the sectors may be undergoing permanent transformation.

The negative outlook is "based on continued weakness in enplanements and toll-paying traffic volumes that are being adversely affected by more than seven months of volatile fuel prices, economic weakness, and inflationary pressures," the report said.

The revision to negative comes only five months after Fitch's special report on global infrastructure and finance for 2008 that gave airports and toll roads a stable outlook, despite its expectations for pressure on both sectors.

But the sluggish economy combined with "an approximately 33% increase in gasoline prices and a 52% increase in jet fuel prices from 2007" led to airport passenger declines up to 19% and a drop in toll-paying traffic of as much as 16%, the report said.

Moody's Investors Service last week lowered its own outlook for airports to negative, with fuel prices as a major factor. Airports are expected to see service reductions in the near term, as airlines try to shave off excess capacity during the post-summer travel months.

"The question is, could that continue, and could that be a shift in the paradigm?" said Mike McDermott of Fitch.

Larger airports with international service and expressway systems have "fared slightly better" than other categories of airports and toll facilities, but the overall trend is declining traffic, the report said. The southwest was highlighted as the "most challenging" region for both airports and toll roads.

The changing travel patterns on toll roads could have a longer-term effect than on the airport sector, McDermott said. Commuters may change where they live or work because of the high cost of commuting, or start using public transit more than cars, he said.

"On the surface side, continued pressure could result in the federal government providing a larger increase in funding for transit, with more limited growth for highways. In addition, we could also see a longer-term shift in population trends with growth accelerating in the urban core and slowing in suburban areas, where driving in congestion is currently a part of daily life," the report said. "The combination of policy and demographic shifts could have a significant impact for toll road credits over the longer term, as they will likely take a much longer time to develop. If they do materialize, prospects for roads dependent upon sustained long-term growth could be impacted."

Fitch plans to release a more detailed report on credits for toll roads and airports in September, followed in October by a report on sea ports and transit systems. For now, Fitch's outlook for ports and transit remains stable. Today's report said that while transit is not immune to higher fuel costs and slowed economic and tax revenue growth, the sector is benefiting from increased ridership and support for growth in services.

The nation's seaports are also seeing a "mixed bag," with declining imports somewhat mitigated by growth in exports, Fitch said.

Ports that launched expansion projects to bring more inbound traffic could be pressured by lowered volume, the agency said. But ports have protection through long-term leases that have locked up some ports' revenues, said Fitch analyst Jesse Ortega in an interview.

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