DALLAS — Credits of the U.S. publicly owned airport sector and the crucial role of airport management are undervalued by the major ratings agencies despite their blemish-proof record, Kroll Bond Rating Agency said in a new report.
While airlines have had a history of bankruptcies and consolidations, which has presented challenges for airports, KBRA said its analysis of sector ratings from Moody's Investors Service and Standard & Poor's found no incidence of default among U.S. publicly-owned airports.
"KBRA believes that ratings assigned to airports are somewhat depressed by their connection with servicing airlines," said the analytics team headed by managing director Harvey Zachem. "However, in KBRA's opinion, airports have weathered idiosyncratic shocks over a long period of time, and management has successfully navigated through a succession of turbulent periods."
Credit in the public airport sector has trended around the A range over the last 10 years, beginning the period at a solid A but then slipping into the A-minus area in 2008 with the onset of the recession, KBRA said.
An average of two A-rated credits default over a 10-year span, but no U.S. airports have ever defaulted on their revenue bonds, the analysis said.
"The fact that there have been no rated U.S. airport defaults suggests this sector may be underrated," Zachem and his team said.
The biggest vulnerability in airport credit is their reliance on airline schedules and changes in the commercial aviation business model, the KBRA analysis found. More than 150 airlines have gone broke or been in various stages of bankruptcy since deregulation began in the late 1970s, the report said.
"Individual airports are vulnerable to airline scheduling decisions, and have in many instances been adversely affected by the closure of hubs and the consolidation that has overtaken the airline industry," KBRA said.
Competent airport operations should be a major consideration when determining credit risk, according to the analysis
"Management represents a critical factor in confronting the day-to-day challenges that airports face," the study said. "A favorable assessment of management may result in a higher rating than would otherwise be assigned."
