In response to Fitch Ratings’ revision of its outlook on O’Hare International Airport’s general airport revenue bonds to negative, Chicago aviation officials said they are confident the airport’s position as a key hub for bankrupt American Airlines will limit any service cuts as the carrier reorganizes.
Fitch last week revised its outlook on $6.5 billion of first-, second-, and third-lien GARBs because of the Chapter 11 federal bankruptcy filing earlier last week by American’s parent, AMR Corp.
O’Hare was one of three connecting hub airports whose bonds were assigned a negative outlook. Dallas Fort-Worth International’s $4 billion of joint revenue improvement bonds were also affected, as were Miami Dade County’s $6 billion of aviation revenue bonds issued for Miami International Airport projects.
“Credit concerns may increase during the course of American’s bankruptcy proceedings should the reorganization process lead to operating decisions that reduce or reallocate the carrier’s schedule,” Fitch wrote.
Chicago aviation commissioner Rosemarie Andolino’s office released a statement stressing that American has reassured airport officials of the critical role O’Hare plays in its business plan, supported by geographic location, a large population, and a diverse economy.
Officials also stressed that the bankruptcy filing in 2002 of United Airlines’ parent UAL Corp. did not result in any material changes at O’Hare. United, which operates a hub at O’Hare, emerged from bankruptcy in 2006.
Fitch affirmed the AA-plus, AA, and A-minus assigned to O’Hare’s first, second and third liens, respectively. DFW is rated A-plus and MIA is rated A.
American and its affiliate American Eagle accounted for 36% of O’Hare traffic in 2010. The $8 billion O’Hare expansion program underway contributes to analysts’ concerns over potential American service changes.
The airport’s annual debt service costs are expected to rise by more than 50% in the next five years, Fitch noted.
“Fitch believes that in the event the American bankruptcy results in material reductions in passenger traffic, this scenario would exacerbate the cost risk in terms of cost per enplanement,” analysts wrote.
Airlines generate more than 60% of total airport revenues, but O’Hare maintains solid liquidity in reserves totaling $767 million.