Moody’s Investors Service issued a report this week warning that it remains pessimistic about airports and is keeping a negative outlook based on expectations for the next 12 to 18 months.

The economic downturn has continued to take its toll on the airport sector, as the volume of passengers and flights, or enplanements, has stabilized but not grown, the credit rating agency noted.

“Consistent growth” is not imminent, according to analysts.

“Airport financial health remains resilient, but the compounded difficult conditions of 2008 and 2009 have reduced flexibility,” the report said.

Moody’s downgraded the credit ratings of six airports in 2009 and gave 11 a negative outlook. One airport’s rating was upgraded, one was given a positive outlook, and four had their outlooks bumped up to stable from negative in 2009.

Some of the factors dragging down the sector’s outlook are oil prices, uncertainty about federal funding, fallout from the financial crisis, and reduced demand for air travel.

Other factors such as security measures and concerns about airborne illnesses have weighed down air travel demand, the rating report said.

In addition, “the majority of rated airports have lost varying degrees of financial flexibility in the downturn of the past 18 months,” it said.

As a result, Moody’s expects the sector to remain unstable “until consistent positive enplanement growth has been achieved.”

Airports have struggled in light of their dependence on hard-hit funding sources such as airlines and concessions that rely on passengers.

Enplanement levels dropped in late 2008 and continued to decline through 2009. The resulting revenue losses forced airports to dip into their reserves and cut back on their capital projects and operations.

While capacity reductions by airlines have led to “better pricing power,” Moody’s said such factors as declines in U.S. income have hurt the industry.

Among the other challenges facing airports are passenger facilities charges, relatively small fees that passengers pay. PFCs provide airports with revenue they can use to back bonds. Many airports have increased their PFCs as high as they can legally, so airport groups are pushing for the federally approved PFC cap to be raised to $7 from $4.50.

The cap is also a potential credit factor, Moody’s noted.

“Stand-alone PFC-backed bond ratings remain a concern for Moody’s as they are more volatile due to a single revenue stream tied directly to enplanement levels and the inability to raise rates beyond the federally mandated cap of $4.50,” the report said. “The coverage margin in these financings have protected them from rating impacts thus far, but continued enplanement declines could lead to ratings changes.”

With their finances already scaled back, airports have lost much of their ability to adapt to poor economic conditions, according to Moody’s analysts. Nonetheless, they said, airports have kept strong liquidity levels and agreements with airlines that provide support.

Other hurdles, mostly outside airports’ control, have influenced the sector’s fiscal strength, including the long-delayed passage of a new Federal Aviation Administration law.

The FAA and programs that provide airport funds have been kept alive by stopgap measures for more than two years, while Congress has failed to pass a new bill.

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