Federal Express’s world hub operations at Memphis International Airport have been a stabilizing influence since Delta Airlines cut back on passenger service, Fitch Ratings said.

BRADENTON, Fla. - Fitch Ratings revised its outlook to stable from negative on bonds issued for Memphis International Airport, Tenn.

The positive move came even though the airport lost a Delta Air Lines' hub and faces rising passenger costs.

The outlook revision was in concert with Fitch's affirmation of the airport's A rating on $347.3 million in outstanding bonds on Sept. 19. The bonds were issued by the Memphis-Shelby County Airport Authority.

"In Fitch's view, continued sound financial operations bolstered by the expansive and stable presence of the Federal Express world cargo hub, and the fully residual airline agreement, mitigate recent Delta developments," said Fitch analyst Charles Askew.

Positive origin and destination traffic trends, despite rising cost-per-enplanement levels, also support a stable outlook since airport cost pressures should ease to some degree as annual debt service requirements decrease under the current debt structure, Askew added.

Reductions in enplanements have resulted in the airport's cost per enplaned passenger increasing to an estimated $11.79 in 2014 from $5.23 in fiscal 2011, according to Fitch.

"A higher cost level could impact the airport's ability to continue to attract new air services as Delta finishes downsizing," said Askew.

In fiscal 2013, enplanements were down 28.6% to 2.8 million, with fiscal 2014 down an additional 30.4% as Delta continued de-hubbing. Airport management projects Memphis being 98% origination and destination by the end of fiscal 2015, Fitch said.

Delta has been scaling back operations at the airport since March 2011 when it reduced service from 204 daily flights to 178. It now operates 37 daily peak flights, though other carriers have increased their schedules.

Memphis maintains a favorable position as one of the world's busiest cargo airports. FedEx maintains its world hub operations in Memphis pursuant to a lease through 2037, and now represents over 90% of the airport's total landed weight.

UPS is also expanding operations at the airport, and is building out facilities planned to increase sorting capacity by 80%.

Memphis International has a "modest" capital improvement plan focused largely on airfield and terminal projects with no future borrowing anticipated, Fitch said.

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