Why airport credit may benefit from U.S. Senate spending plan

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America’s airports may benefit from the U.S. Senate’s proposed fiscal 2018 spending plan, according Kroll Bond Rating Agency.

The Senate bill would raise the cap on U.S. airports passenger facility charge (PFC) rate to $8.50 from $4.50 on non-connecting flights. The measure would also expand the overall airport improvement program (AIP) grant funding to $3.6 billion from $3.35 billion.

However, the plan would require the 30 biggest airports by passenger activity to give up their AIP grants if they decide to exercise the right to raise the PFC above $4.50.
Kroll said that it estimates the net effect of giving up the AIP grant while raising the local airport PFC could bring in over $6.3 billion of new money to these airports over the next five years.

The FAA would also be able to reallocate the freed up AIP dollars toward other airports’ infrastructure needs across the country.

“So, as written, the Senate spending measure is a win-win for both the largest and for many smaller airports,” Kroll said in areport released late last month. “If the incremental PFC revenues are committed to funding proposed capital projects, KBRA estimates that at least nine large hub airports could have 25% more of their currently projected five-year capital needs covered by the new PFC revenues.”

These include: Seattle-Tacoma International Airport, McCarran International Airport in Las Vegas, Baltimore/Washington International Thurgood Marshall Airport, John F. Kennedy International Airport, Miami International Airport, Newark Liberty International Airport, Phoenix Sky Harbor International Airport, Fort Lauderdale-Hollywood International Airport, and Hartsfield-Jackson Atlanta International Airport.
Large hub airports account for 72% of all passenger enplanements in the U.S. and their capital needs are approximately $47 billion over the next five years, according to KBRA’s airport finance database.

Karen Daly, senior managing director, said last week during Kroll’s first public finance market update quarterly call, that the agency generally views airports “as strong credits that are well managed and play a very significant role in their respective local economies."

She added that “we believe that airports as a class of credits are underrated and note that this sector has experienced no defaults of publicly rated debt.”

Kroll’s report stated that it believes the PFC dollars are a credit positive, as they can reduce the need for debt or help support debt service payments.

“While the Senate’s proposed spending plan must survive reconciliation with the House spending plan and the remainder of the grinding federal budget process, it’s worth noting that the bill could inject nearly $10 billion towards airport infrastructure needs over the next five years – which are estimated to be $100 billion in that timeframe,” the Kroll report said.

During last week’s call, Managing Director Harvey Zachem said that “airport management is under-emphasized as a rating factor.” He added that Kroll believes that “strong management is vital to the airport’s successful operation.”

Kroll said it will continue to monitor developments related to infrastructure investment that is enabled or supported by the federal budget process adding that it will “monitor the PFC cap closely because it is our opinion that raising the cap could be a credit positive development for airports needing investment dollars.”

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