BRADENTON, Fla. - Fitch Ratings revised its outlook to negative on Birmingham Airport Authority, Ala. bonds citing erosion in the enplanement base as debt service obligations are rising.
Fitch affirmed the A-minus rating June 4 on about $201.9 million of outstanding revenue bonds issued largely for terminal improvements at Birmingham-Shuttlesworth International Airport. The work is expected to be done in July.
"In Fitch's view, the airport has elevated leverage and cost per enplanement figures relative to peers, and the effects of service cuts by the airport's main carrier, Southwest Airlines Co., may limit financial flexibility," said analyst Casey Cathcart. "However, the airport's conservative debt structure and healthy liquidity position offset some of the risks and could support the A-minus rating should the airport's operations materially stabilize."
The airport has no material competition but is exposed to carrier concentration, with Southwest and Delta Air Lines accounting for 41% and 30% of enplaned passengers, respectively, Fitch said. There has been uneven traffic performance though the facility is in an established service area.
Enplanements declined 2.7% in fiscal 2013 to 1.4 million, representing a 14% deterioration from peak levels in fiscal 2008. Passenger levels continued to weakening in the first nine months of 2014, with an 8.1% loss compared to the same period in fiscal 2013.
When the 2010 bonds were sold, passenger traffic was forecast at 1.5 million in 2013, increasing to 1.7 million in 2018, or about 2.5% annual growth.
"Management is projecting flat to minor incremental enplanement growth in fiscal 2015," Cathcart said.
The authority has a compensatory airline use and lease agreement that took effect in 2012, and enables the airport to use non-airline revenues to keep the cost per enplanement at a level favorable for the carriers, according to Fitch. The CPE was $9.36 in 2013.
The agreement's one-year rolling term "exposes the airport to future renewal risk should traffic and revenue performance materially change," said Cathcart.
Fiscal 2013 debt service coverage met expectations of 2.1 times and is scheduled to drop below 2 times in 2014 and beyond as the 2010 debt becomes payable, Fitch said.
The airport authority is working with rental car agencies to determine the scope of a proposed consolidated rental car facility. Customer facility charge collections began in 2012 to finance the project.
