NEW YORK--(BUSINESS WIRE)--
Fitch Ratings affirms Allegheny County (PA) Airport Authority's (ACAA)
outstanding $322.5 million of senior airport revenues bonds at 'A-' with
a Stable Rating Outlook. The airport also has $5.4 million outstanding
sub lien airport revenue bonds series 2001 A&B, which Fitch does not
The rating affirmation reflects signs of improvement in the airport's
traffic performance and stable cost per enplanement levels. Traffic
increased 0.7% for the first seven months of 2014 following two years of
slight decline. Cost per enplanement (CPE) remains around $14 and is
expected to remain stable in the near term with the use of gaming tax
and gas drilling revenues until debt service cost declines in 2019.
KEY RATING DRIVERS
O&D Airport with Limited Competition-Volume Risk: Midrange
The airport serves primarily an origination and destination (O&D)
passenger base following the de-hubbing operations of US Airways. The
stabilized enplanement base is up 0.7% year-to date (YTD) 2014 after
dropping 1.8% Fiscal (FY) 2013 to 3.9 million enplanements. The airport
faces limited competition with no major airports within 100 miles and
also serviced by a diverse share of carriers. US Air/AA is the largest
carrier with 34% market share.
Subsidized CPE-Price Risk: Midrange
The airport utilizes a cost center residual use and lease agreement that
provides strong cost recovery terms through 2018. However, the current
CPE of $14.57 is considered high for a medium hub airport and is
subsidized by gaming tax revenues. Fitch expects the near-term CPE to
remain at the current level through the use of external revenues and
initial payment from the gas drilling lease agreement to reduce airline
Manageable Capital Program-Infrastructure Development and Renewal Risk:
$302 million 2014-2020 capital improvement program (CIP) with slightly
less than half coming from FAA grants. The 20year old terminal is in the
process of being renovated, and most projects go towards repair and
rehabilitation. No additional debt is anticipated to fund the CIP.
Rapid Debt Amortization-Debt Structure: Stronger
Debt service schedule is front loaded and amortizes quickly. $322.5
million of revenue bonds outstanding are all fixed rate and a majority
of it will be amortized within the next five years. Debt service
payments decreases from $65.3 million to $55.9 million by 2018 and then
declines to $15.1 million in 2019. Final maturity is in 2031.
Low Leverage and Improved Liquidity
The airport has low leverage with net debt to CFADS of 3.29 times (x) in
2013. Coverage remains adequate at 1.41x, and Fitch expects coverage to
remain in the 1.4x range going forward. In 2013, the airport had $64.4
million of unrestricted cash equivalent to 254 days cash on hand (DCOH)
and 327 days when including the O&M and renewal and replacement (R&R)
Positive-Reduced cost to airlines on a sustained basis as a result of
careful expense management, lower debt service cost, and gas drilling
royalties will improve the airport's competitive position and may lead
to further positive rating action.
Negative-Service reductions from airlines or unmanaged expense growth
leading to a higher CPE would pressure the current rating level.
Enplanements declined 1.8% in FY2013 partly due to JetBlue discontinuing
service leading to higher fares to New York, but have remained stable
around 4 million in recent years. Year-to-date enplanements are showing
some improvement, up 0.71% through July 2014 due to Frontier resuming
charter service in May 2014 and additional service from People's Express
in June 2014. Service from Southwest added FY2013 includes daily
seasonal flights to West Palm Beach (February 2013), year-round daily
flights to Houston Hobby (April 2013), and Nashville (September 2013)
which are all performing well. JetBlue started one more daily nonstop
flight to Boston in May 2013, and American Airlines began 7-day nonstop
service to LAX in August 2013. Fitch expects slight enplanement growth
going forward fueled by continued economic developments and stability of
the Pittsburgh region. The airport's residual airline use agreement
expires in 2018 and will likely remain unchanged upon renewal.
The airport received an upfront bonus payment of $42.8 million for the
gas drilling and $3.5 million was set aside by CNX Gas company in escrow
to be released as mineral rights on deeds are cleared through legal
assistance. The airport will also receive monthly royalty payments equal
to 18% of gas proceeds from Consol Energy which will be allocated based
on geographical cost center under the current use and lease agreement.
While an additional revenue source, gas royalty payments are volatile,
and Fitch will monitor the reliability as an ongoing source of revenue.
The wells are outside the airport operations area, but the airport will
avoid residential or environmental disturbance.
Operating revenues increased 0.2% to $139.2 million in FY2013 due to
higher terminal area airline fees, concessions, and rental car revenues.
YTD July operating revenues are up 16.2% or $12.4 million favorable from
prior year due a bankruptcy settlement with American Airlines, higher
parking and rental car revenues also contributed to the increase. The
airport is in a position to enhance revenues going forward. The airport
will receive greater concession revenues starting in 2018 due to an
extended concession agreement increasing gross income to 77% from 59%.
The airport also expects to receive royalties from gas drilling
operations beginning early 2016 but will not include these payments in
the budgeting process until revenues have a proven history.
Operating expenses grew 3.2% to $90.9 million in FY2013 mainly due to
overtime required for snow removal, and 2014 YTD July operating expenses
of $86.3 million are 5% higher than prior year for the same reason. The
airport aims to contain expenses by focusing on customer service, and
updating their energy management program with Honeywell for future
utility savings. 2013 headcount was down three positions from 2012, and
as of July 2014 is down 18 further. Operating expenses have only grown
at a five-year CAGR of 4.7%, and CPE remains in the $14 range slightly
increasing to $14.57 from $14.24 due to the slight enplanement decline.
Fitch conducted several sensitivity analyses. The base case scenario
assumes annual traffic growth of 1% and inflationary expense growth of
3%. Under this scenario, CPE is expected to remain $14-$15 through 2018
by applying half of the $42 million initial payment from the gas
drilling lease and decrease to $5-6 after debt service drops in 2019.
Fitch's rating case sensitivity analysis assumes an eight percent
traffic decrease in 2015 to 3.6 million and slightly higher inflationary
expense growth of 3.5%. In this scenario, the airport will have to apply
a majority of the initial lease payment to maintain CPE at current
levels through 2018. Although current CPE of $14.57 is considered high,
Fitch believes the airport has sufficient liquidity to maintain stable
cost to airlines. The airport's low leverage and stable enplanement base
is consistent with the 'A-' rating.
Bonds are secured by the net revenues generated from the operations of
In comparison to peers in Fitch's portfolio, Pittsburgh International
Airport has favorable or comparable leverage ratios amongst other
airports with an 'A-' rating such as Cincinnati and Cleveland but has an
elevated CPE. Liquidity is also comparable to peers providing almost a
year's worth of cash on hand.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11,
--'Rating Criteria for Airports' (Dec. 13, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
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Source: Fitch Ratings