CHICAGO - Fitch Ratings this week lowered its rating to A-minus from A on roughly $215 million of outstanding debt issued for the Cincinnati/Northern Kentucky International Airport as the airport faces impending service cuts by its largest carrier, Delta Air Lines Inc., which is merging its operations with Northwest Airlines Corp.
Fitch also maintained a negative outlook on the airport's debt, which is issued by the Kenton County Airport Board.
Facing a 30% reduction in Delta's flights by early next year, the Cincinnati airport will suffer the largest capacity reductions of any airport in the country, said Fitch analyst Mike McDermott.
The downgrade comes eight months after Delta and Northwest announced they would merge in a move completed in October and created the world's largest airline. At the time credit analysts warned that the move could negatively impact some airports, with some singling out the Cincinnati airport as particularly vulnerable.
Delta, which accounted for 92% of passenger traffic at the airport last year, has said it would maintain the hub after the merger is complete. But Fitch warned that the two airlines, once their operations are fully merged, are likely to find it difficult to maintain four large connecting hubs - Minneapolis, Detroit, Memphis, and Cincinnati - that are relatively close together. And even if Cincinnati maintains its hub status, it faces significant flight cuts from Delta, McDermott said.
"[The loss of the hub] is an issue they face," he said. "Or Delta could keep it as a hub and still pull back further."
Airport officials said they were not worried about Fitch's downgrade as they have no plans to borrow for the next several years.
"It's not going to affect us at all because we don't have any projects on the horizon and we have no variable-rate bonds," said airport spokesman Ted Bushelman. "The whole aviation industry is suffering. I won't be surprised to see other airports downgraded."
Delta is expected to cut back its amount of peak daily flights to 263 by January 2009 from 403 in January 2008. The airport has said it expects enplanements to total 6.7 million in 2008 - down 15% from 2007 - and decline another 18% in 2009. With the planned cuts, expected passenger traffic at the airport in 2009 could be as low as that experienced in 1992, McDermott said.
To prepare for Delta's cuts, the Kenton County Airport Board has implemented a series of spending cuts, extended a hiring freeze, and scaled back its master plan to postpone all borrowing, said the board's chief financial officer, Sheila Hammons. A $191 million capital improvement plan will be funded with cash and passenger facility fees, she said.
All of the airport's roughly $216 million of outstanding debt is in the fixed-rate mode. In May, the airport paid off roughly $60 million of five-year-old auction-rate debt using a combination of federal grant and passenger facility charge funds, Hammons said. New York-based Government Finance Associates Inc. is the board's financial adviser.
In other fallout from the merger, Fitch in October revised its outlook to negative on the A-rated Wayne County Airport Authority, citing in part near-term uncertainty stemming from the merger. Northwest is the Detroit Metropolitan Wayne County Airport's largest airline.
