BRADENTON, Fla. — Moody's Investors Service downgraded the rating on the Memphis-Shelby County Airport Authority's bonds to A3 from A2 a day after Delta Airlines announced that Memphis International Airport would no longer be a hub.
The downgrade affects $415 million of outstanding revenue bonds. The outlook is stable.
On Tuesday, Delta announced that it would reduce operations at the southwest Tennessee airport in September and cut the number of daily flights to 60 from 92. Delta also said it no longer considers Memphis a hub.
"The downgrade to A3 reflects the increased risk at the authority's Memphis International Airport posed by the sharply reduced service levels, recently announced service reductions by Delta, and the subsequent increase in costs to all other airlines at the airport under the residual airline use and lease agreement," Moody's analyst Earl Heffintrayer said.
"Moody's views the increased costs as providing additional stress to airline service in the near term as the airport currently stands at peak annual debt service."
Scott Brockman, the authority's chief operating officer, said he believed the higher rating should have been maintained and pointed out that the airport's credit is stable, operational costs have remained flat the past five years, and coverage levels have exceeded the 1.25 times minimum.
In fiscal 2013, which ends June 30, debt service coverage is expected to be 1.3 times or higher, he said.
"We believe that the airport authority's debt is as safe and secure as it was last month," he said. "We don't anticipate issuing any new debt in the near future, and fully expect our rating to be increased over the near future as we add airlines and increase traffic again."
Brockman also said that the fact that Memphis International is the principal hub for Federal Express is often overlooked. Memphis is also the world's second busiest cargo airport.
In August, Air Tran will launch new daily service in Memphis to Chicago Midway, Baltimore, Orlando, Houston Hobby, and Tampa, Fla. The brand will change to Southwest Airlines Nov. 3.
Moody's said enplanement levels at the airport continue steep declines as a result of Delta's reduction of service. Enplanements fell 29% between 2008 and 2012. There were 3.925 million enplaned passengers last year.
Even after the reduction in service, Delta will remain the largest passenger carrier at Memphis with 79.7% of enplanements.
In May 2012, Fitch Ratings downgraded the Airport Authority's bonds to A from A-plus and revised the outlook to stable from negative. Fitch said the action reflected "elevated concerns over financial flexibility and cost stability" due to Delta's phased reductions in connecting operations.
Standard & Poor's affirmed its A-minus rating in September and said the outlook on all bonds is stable.
