DALLAS — U.S. airports may someday face competition from high-speed rail on short routes, but that's not a sure thing yet, Kroll Bond Rating Agency said in a new report outlining how it rates general airport revenue bonds based on six criteria.
"Certain short-haul flights of less than 500 miles are now or may be in the future subject to competition from rail," Kroll senior director Harvey Zachem and senior managing director Karen Daly wrote in the report issued Wednesday.
The competition is already showing up from Amtrak's fast trains in the Northeast Corridor from Washington to Boston, Zachem and Daly said.
"Other corridors are in line for federal high-speed rail funding, but the timing and capital costs are uncertain," the Kroll report noted.
The often lengthy distances from city centers to the nearest airport is a factor in rail's competitiveness, as are the required early check-in times for airport security and higher airline fares, the report said.
"However, the future of high-speed rail is not assured," the Kroll analysis said. "Furthermore, the availability of the rail option is not likely to affect those passengers connecting through an airport."
The report cited six determinants used by Kroll for airport credits, including management, service area, airport utilization, debt, airport finances, and security provisions.
Airports are among the most complex credits in municipal finance due to their wide diversity in size, operating environments, and revenue and cost structures, Zachem said.
This level of complexity demands a high level of management expertise at airports, Zachem said, including an ability to adjust to a rapidly evolving environment and deal with new and often unexpected challenges.
"Kroll Bond Rating Agency believes that heretofore the quality of management has been underemphasized in airport credit analysis," Zachem and Daly wrote in the report.
"What we're trying to do here is acknowledge the role of management, which has had to deal with several significant challenges over the past 13 to 14 years," Zachem said. "Airport operators have for the most part been able to work through the changes in security due to the 9/11 terrorist attacks, fuel price spikes, a recession that curtailed air travel, airline bankruptcies, and a credit crisis in 2008 and 2009.
"That's a lot of factors they've had to grapple with," he said. "Airports have a lot of moving parts, which is why we regard them as complex."
Overall, Daly said, airport finances have been and are being well managed despite the changes and challenges over the past decade.
"Airport managers in general have done well in sailing their credits through the ups and downs of the aviation business cycle," she said.
Kroll uses a stress test during the rating process to determine if the airport could continue to make timely debt service payments despite disruptions. The stresses may include a haircut in payments from the facility's largest airline customer and other revenue relied on by the issuer from a new infrastructure project.
"The ultimate goal in applying the stress testing scenarios would be to study the impact on airline costs and the airport's competitive position," the Kroll report said.
An individual airport's rating will be based on an assessment of the airport or airport system's general airport revenue bonds overall credit strength, and reflects the ability to make timely and in-full debt service payments, the report said.
