St. Louis airport's growth fuels upgrade

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CHICAGO – St. Louis received a double dose of positive news this week with voter approval for $50 million general obligation borrowing and an airport upgrade as it explores a privatization.

Moody’s Investors Service raised its rating on St. Louis Lambert International Airport’s $657 million of rated airport revenue bonds to A2 from A3 and assigned a stable outlook, an action “primarily driven by the positive trajectory of credit metrics such as liquidity, declining leverage and enplanement growth,” analysts wrote.

The airport's declining cost structure and positive enplanement trend drive an increasingly competitive cost per passenger, and the airport faces limited competition for origin and destination passengers as it enjoys rapid growth in connecting traffic and the addition of new routes, increased frequencies and seats.

The bonds are secured by net airport revenues including a portion of passenger facility charges up to 125% of project eligible PFC debt service. Cost per passenger was down to $11.10 in 2017 from $11.89 in 2016 and passenger levels rose by 5.4% to 15.1 million in fiscal 2018 ending June 30. The airport has recorded 34 months of growth.

The upgrade follows a similar move by Fitch late last year and comes as the city is advancing plans to privatize the airport under the federal pilot program.

“This credit upgrade shows the continuing confidence that Moody’s has in our management team at St. Louis Lambert International Airport,” city Comptroller Darlene Green said in a statement. “The airport is in a strong financial position showing nearly three years of passenger growth, three credit upgrades and added domestic and international flights.”

Green has cited the airport’s stronger operations and positive credit momentum in her opposition to the privation plans.

She voted against the hiring in June of a 16-member advisory team when it came before the Board of Estimate and Apportionment. The latest upgrade adds further evidence to her argument, said Green’s spokesman Tyson Pruitt. The airport is owned by the city and operated by an airport authority.

The initial Moody’s report does not address the lease plans. Fitch said it “will continue to monitor the situation for any potential credit implications.”

The city’s advisory working group held its first meeting this week with its consultants and advisors. The team has a mix of city ties and experience with public-private partnerships, the airport sector and other areas. Critics have charged the review process is slanted toward privatization based on some of the firms on the team and an arrangement to pay fees only if a deal is brokered.

The city began considering a lease under Mayor Lyda Krewson’s predecessor, Francis Slay, in March 2017 as a means to generate private investment in the airfield and money for the city government. Slay has joined one of the firms that considering a bid should the airport move forward.

The Federal Aviation Administration accepted the application and the city established a selection committee in September and then launched a selection process for advisors.

The airport bonds would be retired under a lease deal. Fitch rates them at A-minus and S&P Global Ratings has them at A-minus.

Voters overwhelmingly approved the GO borrowing, which does not require a tax hike. The city’s GO ratings have deteriorated in recent years which Green has called a “wake-up call” for city leaders to limit their use of city tax dollars and the city's credit to promote special interest projects.

Moody’s this spring lowered the city’s GOs one notch to Baa1 from A3. It also downgraded the city in 2015, 2016, and 2017. S&P rates the city at A-plus and stable. Fitch rates it at A-minus. It lowered the outlook to negative in May.

The city's overall prospects do factor into the airport rating.

“Over the longer term, we expect the metro area economy will underperform the rest of the nation and constrain growth,” Moody’s wrote.

Any final agreement with a private operator would require approval from the Board of Estimate and Apportionment, the Board of Aldermen, the FAA, and a majority of the airlines that operate at Lambert. The process is estimated to take between one and three years.

The FAA program allows for private operation of airports that have received federal funding. Under the program, the city could lease the airport and its operations but would retain ownership rights.

The program was launched in 1996 allowing airports to enter into long-term operating leases or pursue the sale of a facility to a private firm. The 2012 Reauthorization Act increased the number of airports than can participate to 10 from five but there have been few takers.

St. Louis is the only U.S. hub airport currently seeking a slot. Only two airports have been privatized since the law was enacted, and one of them, Stewart International Airport in Newburgh, N.Y., reverted to public ownership after seven years.

The FAA approved the privatization of Puerto Rico's Luís Muñoz Marín International in 2013 and it remains in the program. Aside from St. Louis, there are only two county airports in in Florida and New York currently seeking slots, according to the program’s website.

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Airport revenue bonds Public-private partnership Ratings City of St. Louis, MO Missouri