Moody's Report Says Airports, Ports at Moderate Fiscal Cliff Risk

Airports, ports, and private power companies are at risk due to the impending fiscal cliff, while toll roads and public power utilities are insulated from the worst danger, according to a Moody's Investors Service report released Wednesday.

Although Moody's predicts that some kind of compromise to "soften the blow" is likely to come before the combination of spending and tax cuts kicks in automatically with the new year, there is still a risk the nation will fall off the fiscal cliff and another recession will set in as a result.

"Any return to recession would affect virtually every infrastructure sector," the report states. "Our study of the fiscal cliff's potential across the infrastructure business world indicates a range of impacts of a possible 2013 recession sparked by a failure to solve the fiscal cliff problem."

Airports and ports both face "moderate" risk in a cliff scenario, Moody's analysts conclude, meaning that they could see contractions of revenue in the mid-single digits. Airports would likely suffer reduced capacity from falling profit margins and cuts to Federal Aviation Administration staff, especially impacting smaller airports, the report explains.

"When combined with industry trends of airline capacity reductions and increasing ticket prices, we would expect to see enplanement levels decline nationwide in magnitudes similar to the 5% to 10% declines experienced in 2008 and 2009," the report states. Airport Improvement Program grants are excluded from the sequester, but airport lobbyists have also expressed concern that AIP grants will eventually come under the knife.

Small ports are also the most at risk in that sector. Ports generally have long-term contracts with the shippers and cruise lines that service them, providing stability. Many U.S. ports are large, contributing to resiliency, the analysts wrote, but not so for smaller ports.

"Smaller U.S. ports with commodity concentration, or those that primarily trade with a specific region (for example, the Caribbean is a key partner for several gulf coast and Florida ports), or those that derive the majority of their revenue from a few partners, are more exposed to a cargo tonnage or cruise travel declines," Moody's says in the report.

In the power sector, public power utilities will fare much better than companies whose profits are not subject to regulation, Moody's says. These are independent power producers who do not enter into regulated utility agreements.

"Most at risk is the unregulated power company sector, which will be hit because electric sales volumes will be lower and depressed natural gas and power prices will further hurt margins," the report states.

Conversely, public utilities enjoy a government-sponsored monopoly in their service areas and can raise rates on these essential services if necessary.

"These two key factors would allow the sector to weather another possible recession though an economic downturn will add stress to the sector," Moody's says.

Despite widespread industry worry, Moody's analysts believe toll roads are at low risk. They face the same general pressure associated with an economic recession, the report concludes.

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Infrastructure Washington
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