Fitch Affirms Burbank-Glendale-Pasadena Airport Auth (CA) System Revs at
'A+'; Outlook Negative
CHICAGO -- June 13, 2013
Fitch Ratings has affirmed Burbank-Glendale-Pasadena Airport Authority's (BUR)
approximately $135.7 million of outstanding airport system revenue bonds at
'A+'. The Rating Outlook on all bonds is revised to Negative from Stable.
The Negative Outlook reflects concerns that coverage ratio trends may continue
to weaken as a result of a combination of increasing operating costs and
stagnating revenues in a declining enplanement environment. Absent successful
budgetary actions or traffic induced revenue improvements, Fitch believes that
the airport could face declines of its operating margin and debt service
coverage ratio (DSCR) erosion bringing it closer to its rate covenant. Should
these trends persist, downward rating action may be necessary.
KEY RATING DRIVERS
VOLATILE TRAFFIC BASE TIED TO HIGHLY COMPETITIVE MARKET: BUR had 2.1 million
enplanements in fiscal year (FY) 2012 (ending June 30), a decline of 3.5%
year-on-year compared to FY 2011. The airport's predominantly O&D traffic base
is down 6.8% for the first nine months of FY 2013. Airline concentration risk
exists, with Southwest Airlines Co. (Southwest) representing 66.6% of
Revenue Risk - Volume: Weaker
STRONG COST RECOVERY FRAMEWORK: The airport has a residual use and lease
agreement with minimal dependence on airline charges and a very low cost
structure, resulting in a nationally low airline cost per enplanement (CPE) of
approximately $2.16 in FY 2012.
Revenue Risk - Price: Stronger
CONSERVATIVE DEBT STRUCTURE: All of BUR's debt is fully amortizing and fixed
rate. Gross debt service escalates to maximum annual debt service (MADS) of
$11.2 million in FY 2016 and remains flat until FY 2027 when it drops to $5.8
million. Upon completion of the RITC project, CFC revenues and rental car
company rents are used as an offset to annual debt service beginning in FY
Debt Structure: Stronger
MODERATE LEVERAGE AND EXCEPTIONALLY HIGH CASH BALANCES: The airport has
notably strong financial metrics, driven by a very healthy liquidity position.
Including the $105 million Facility Development Reserve, which Fitch
understands to be completely unencumbered, the airport maintains 1,465 days
cash on hand and leverage at a level below zero. If the airport were to
deplete the reserve, days cash on hand would drop to 409 and leverage would
jump to 10.5x.
Debt Service and Counterparty Risk: Stronger
MANAGEABLE CAPITAL PLAN: Phase 1 of the RITC project, which includes the
construction of the RITC structure, the Consolidated Rental Car Facility
(CRCF) and several other ancillary projects, remains on track within its
original budget of $111 million.
Infrastructure Renewal and Development: Midrange
--An erosion of the airport's high cash balances to meet airport
infrastructure needs would lead to a sharp increase in leverage, and would
probably trigger a negative rating action;
--A decision by Southwest to exit or substantially retrench its presence at
BUR could dramatically reduce the airport's enplanement base, likely leading
to negative rating action;
--A continuation of the downward DSCR trend due to continued falls in general
traffic, unsuccessful cost control or inability to maintain revenues by the
third-party operator could put pressure on the rating;
--Inability to complete the RITC project on time and within the cost
parameters currently forecast could also pressure the rating.
The bonds are secured by the net revenues of the airport.
Enplanements continued their multi-year decline in FY 2012 by 3.5% to 2.1
million. Of the FY 2012 traffic loss, 7.3% is attributable to American
Airlines, Inc. withdrawing from BUR in February 2012. As a result of seat
reductions, average load factor improved 2.5%.
Operating revenues were $45.2 million in FY 2012, 5.7% down from $47.9 million
in FY 2011. This decline was primarily driven by a fall in parking fees and
non-airline tenant rent. Operating expenses in FY 2012 were $36.3 million, up
3.5% from $35.1 million in FY 2011. Approximately 11% of BUR's total operating
revenue is supported by the airlines. Non-airline revenues make up the
remaining 89%, with the largest share derived from parking fees and
non-airline tenant rent, which account for 65% of total revenue between them.
BUR's CPE in FY 2012 was $2.16, up from $2.09 in FY 2011. CPE is expected to
rise to around $3 over the next five years, still significantly lower than
competing airports in the Southern California air service market. FY 2012 DSCR
declined to 1.63x from 2.36x in FY 2011 and is expected remain under 2.0x even
with the benefit of transfers in the near term.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance'(July 11, 2012);
--'Rating Criteria for Airports'(Nov. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Daniel Adelman, +1 312-368-2082
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Seth Lehman, +1 212-908-0755
Saavan Gatfield, +1 212-908-0542
Elizabeth Fogerty, +1 212-908-0526
Press spacebar to pause and continue. Press esc to stop.