WASHINGTON - The airport sector's troubled credit outlook will continue into 2010, and airport issuers' will likely experience more ratings downgrades and negative outlook actions during that time, Fitch Ratings warned in a report yesterday. However, it said the downgrades probably won't be worse than one or two notches.
Secondary hub airports and airports that service pleasure travel will be at the most risk, analysts said. For example, Fitch in January revised its outlook to negative from stable for the airport serving Las Vegas.
Analysts attributed the report's gloomy outlook to ongoing credit market troubles, monoline insurer credit downgrades, and the poor economy's impact on airport traffic. The agency downgraded or gave a negative outlook to all seven of the airport credits it rated during the past nine months.
The analysts noted that some airports have been subsidizing their costs in less-conventional ways. While the costs normally would be covered by airlines, the airports have instead deferred capital projects, drawn from their reserves, or restructured portions of their debt. This year, those tactics could be harder to use while still maintaining financial flexibility and could bring about credit actions, the agency warned.
Forthcoming congressional and presidential actions could have an impact over the long term on airport finances, as well, analysts said in an interview.
Reauthorization legislation pending in the House for the Federal Aviation Administration would raise the limit on passenger facilities charges that airports could levy to $7 from $4.50.
"That actually could be credit positive," said Seth Lehman, who authored the report. But lawmakers could also impose new requirements that would raise airport costs, he noted.
One bright spot in the forecast is the short-term alternative minimum tax exemption for airport private-activity bonds that was implemented with the recovery act, Fitch said. The provision could allow airports to sell PABs at a lower cost. However, airports might also see the AMT provision as a chance to refund their debt with longer terms, which would ease costs in the near future but could negatively affect their credit, Fitch said.
Such an action "results in a more escalating debt service profile," said Mike McDermott, a senior transportation analyst for Fitch.
The report found that airports had a median of 335 days cash-on-hand in 2007, a large jump from 232 days in 2001. But those reserves probably will have to be used to preserve financial health for the sector in the short term, the report said.