Negative Outlook Rationale
The Negative Outlook reflects ONT's ongoing transition from a strategic reliever airport serving the greater
The need for further cost-containment whilst holding airline costs no higher than current levels remain the primary concern, as the enplanement base is potentially susceptible to further decline, reflecting acute competition from neighbouring airports. The airport's strong liquidity position and low leverage somewhat mitigates the airport's operational challenges; nevertheless, further traffic declines and increasing CPE would reflect weakening franchise strength no longer consistent with an A-category rating.
KEY RATING DRIVERS
Revenue Risk- Volume: Weaker
SECONDARY AIRPORT IN COMPETITIVE REGION: ONT is in transition from being a strategic reliever facility to a smaller regional hub in the highly competitive southern California air service market. The airport's traffic profile has shown six years of consecutive declines with enplanements in fiscal 2014 expected to fall to 2.0 million from 3.5 million in fiscal 2008. The airport is dominated by Southwest Airlines, which accounted for approximately 56% of air services in fiscal 2013.
Revenue Risk- Price: Midrange
COMPETITIVENESS CONSTRAINED BY HIGH CPE: The airport operates under a long-term residual use and lease agreement expiring in 2024, which provides the basis for strong cost recovery. As at
MANAGEABLE CAPITAL PLAN: ONT's infrastructure is in adequate condition with only routine maintenance comprising the CIP of
Debt Structure: Stronger
CONSERVATIVE DEBT STRUCTURE: The airport's outstanding debt profile consists of entirely fixed rate, fully amortizing bonds with final maturity in 2026. Its debt service schedule is relatively flat with annual debt service payments ranging from
LOW LEVERAGE, STRONG LIQUIDITY: The airport's debt service coverage ratio (DSCR) of 1.44x provides adequate financial cushion. Unrestricted cash of
PEERS: Amongst its peers at the 'A-' rating level, such as
--Continued traffic declines that result in a significantly lower enplanement base, further weakening the airport's franchise strength.
--Operating Cost Management: Inability to strategically manage costs, resulting in increases to the already high CPE;
--Liquidity Balances: Significant erosion in the airport's strong liquidity position leading to an increase in leverage;
--Continued uncertainty with respect to ownership of the airport that further affects its operations.
--Unlikely at present given current traffic trends.
The airport continues to experience traffic declines as a result of a weak local economy and competition from nearby airports. Enplanements decreased by 6.3% to 2.08 million in fiscal 2013 and continue to show declines in fiscal 2014 (11 months through May) of 4.1%. All services offered at ONT are also available from LAX, the primary airport in the region, and usually at higher frequencies and capacity. Fitch is of the view that further enplanement decreases to levels below 2 million enplanements followed by sluggish growth are possible - a scenario that would reflect significantly weakened franchise strength of the airport.
CPE was reported to be
DSCR remained strong at 1.44x in 2013, similar to the 1.48x coverage resulting in 2012. The airport has historically generated DSCRs of 1.4x - 1.5x through expense reduction initiatives and the pass-through of costs to carriers. It also has a strong liquidity position, with 96 million of unrestricted cash, which reflects the insurance trust, revenue fund, and O&M reserve.
Fitch's base case scenario assumes continued traffic declines from 2014 to 2016 to 1.8 million enplanements. The 9% expense decline in 2014 is attributed to the airline consortium cost savings followed by slight expense growth thereafter. In order to maintain DSCR of 1.5x under such scenario, CPE in 2014 would need to return to 2010 level of
In 2011, the city of
The bonds are secured by a net revenue pledge of the airport and exclude passenger facility charges (PFCs) and consolidated facility charges (CFCs).
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for Airports' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
Source: Fitch Ratings
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