Fitch Affirms Maryland Transportation Auth. Series 2002 Parking Revenue Bonds at 'A-' rating
Fitch Ratings affirms the 'A-' rating on the Maryland Transportation Authority's (MdTA) series 2002 airport parking revenue bonds. Fitch also affirms the 'A' rating on the MdTA's outstanding series 2003 variable-rate passenger facility charge (PFC) revenue bonds. The Rating Outlook on both series of bonds is Stable
The MdTA is a unit of the Maryland Department of Transportation (MDOT) responsible for the planning, financing, construction, and operation of toll-producing transportation assets of the state. MdTA in this instance functions as a conduit issuer for the Maryland Aviation Administration (MAA), a unit of MDOT, which holds a lease for and operates Baltimore Washington International Airport (BWI, or the airport). The series 2002 and 2003 bonds collectively were issued for capital improvement projects at the airport. The ratings on the series 2002 and 2003 bonds are supported by the strong economic profile of the airport, the significant passenger growth seen at the airport over the last decade, and the overall economic strength and above-average wealth levels of the service area, which ranks as the nation's fourth largest metropolitan area. The Stable Rating Outlook is based on the wealth of the Baltimore-Washington DC service area and its ability to sustain consistent traffic patterns over the near- to medium-term, and on expected high levels of debt service coverage, even under stressed scenarios.
These strong credit factors are partially offset, in the case of the series 2002 parking revenue bonds, by the risk of a potential bankruptcy of the private parking concessionaire that could disrupt cash flows, competition from off-airport parking sources, and lower than forecasted parking revenues as passenger traffic growth has slowed in the past year. Credit concerns for the series 2003 PFC revenue bonds center on the narrow revenue stream supporting the bonds and the proximity of Dulles International and other competing airports, which have a proven ability to draw important leisure traffic away from BWI.
Passenger demand at BWI more than doubled between fiscal years 1993 and 2004, when it reached a peak of 10.8 million passengers. While the strength of the service area and the national economic recovery played a role in the growth of the airport, the initiation and expansion of service by Southwest Airlines (Southwest) also generated considerable passenger demand. From an initial eight daily flights to two cities in 1993, Southwest now offers 164 daily flights to 34 destinations, with the airport serving as its regional base for the east coast. Southwest ranked as the airport's largest carrier in fiscal 2005, accounting for 47% of total passengers, followed by AirTran Airways at 9%.
The airport experienced a 6% drop in enplanements in fiscal 2005 compared to the prior year as it faced increased competitive pressures from nearby airports such as Dulles International Airport (Dulles) and Philadelphia International Airport (Philadelphia). Low-fare carrier Independence Air (Independence) initiated service at Dulles in June 2004 and rapidly expanded to become the second largest carrier with a 21% share of that airport in fiscal 2005. Southwest initiated service at Philadelphia in May 2004. Prior to Independence's arrival at Dulles and Southwest arrival at Philadelphia, BWI had been the region's primary provider of low-fare air service.
Financial pressures resulting from Independence's rapid expansion eventually forced the suspension of service by that carrier on Jan. 5, 2006, and BWI management expects enplanements at BWI to return to positive growth trends from fiscal 2006 onwards as passengers return to traditional travel patterns. Enplanement data for the first five months of fiscal 2006 show a 2.4% increase on the prior year, indicating a potential reversal of last year's loss. The airport's consultant forecasts enplanements at the airport to grow at a 4.1% average annual rate through 2013; a rate which matches Federal Aviation Administration estimates for the nation and is well below the 9% average annual growth rate experienced by the airport over the last decade. Fitch will continue to monitor the impact on BWI stemming from Southwest's presence and expansion at Philadelphia.
BWI recorded a $6.16 cost per enplaned passenger in fiscal 2005, positioning it as one of the least expensive large hub airports in the nation. The airport's favorable cost structure serves to offset concern regarding the presence of several competing airports in the service area as it makes the airport an attractive option for low-cost airlines seeking to expand service into the Baltimore-Washington area.
Additions to the airport's parking stock combined with a large passenger base has yielded strong cash flow from parking operations, with debt service coverage well above the rate covenant despite being under forecasted levels. Fiscal 2005 parking revenues provided approximately 2.10 times (x) coverage of debt service and Fitch calculates that fiscal 2005 revenues would cover maximum annual debt service (occurring in 2016) 1.70x, above the bonds' 1.25x rate covenant. The MAA had previously forecast coverage of approximately 2.50x in its 2002 forecast. Fitch notes that management has added language to its current parking operator contract which provides additional legal protection by clearly defining the parking contractor as an agent of the MAA in its administration of parking revenues and funds. However, increased off-airport parking competition, which tempers the MAA's pricing ability, volatility in the leisure passenger market, and bankruptcy risk from the private parking operator remain credit risks.
The narrow revenue stream and limited flexibility provided by PFC receipts represents the primary credit risk related to these bonds. As the airport currently levies the PFC at the maximum rate allowed by federal law, total revenues generated from the charge are dependent on the level of passenger traffic at the airport. PFC collections for fiscal 2005 totaled approximately $42 million and would provide an estimated 3.55x coverage of debt service on the series 2003 bonds once principal payments begin in fiscal 2007. Based on forecasted growth rates, PFC revenue is expected to provide at least 3.55x debt service coverage through 2013. The growth of low-cost service at competing airports is expected to temper these forecasts; however, Fitch estimates that the airport could sustain a decline of 60% in PFC revenue from the fiscal 2005 level and meet its debt service obligations. Furthermore, MAA management has demonstrated conservatism in its historical leveraging of PFC revenues and does not expect to significantly lever down this revenue stream.
The airport experienced a 6% drop in enplanements in fiscal 2005 compared to the prior year as it faced increased competitive pressures from nearby airports such as Dulles International Airport (Dulles) and Philadelphia International Airport (Philadelphia). Low-fare carrier Independence Air (Independence) initiated service at Dulles in June 2004 and rapidly expanded to become the second largest carrier with a 21% share of that airport in fiscal 2005. Southwest initiated service at Philadelphia in May 2004. Prior to Independence's arrival at Dulles and Southwest arrival at Philadelphia, BWI had been the region's primary provider of low-fare air service.
Financial pressures resulting from Independence's rapid expansion eventually forced the suspension of service by that carrier on Jan. 5, 2006, and BWI management expects enplanements at BWI to return to positive growth trends from fiscal 2006 onwards as passengers return to traditional travel patterns. Enplanement data for the first five months of fiscal 2006 show a 2.4% increase on the prior year, indicating a potential reversal of last year's loss. The airport's consultant forecasts enplanements at the airport to grow at a 4.1% average annual rate through 2013; a rate which matches Federal Aviation Administration estimates for the nation and is well below the 9% average annual growth rate experienced by the airport over the last decade. Fitch will continue to monitor the impact on BWI stemming from Southwest's presence and expansion at Philadelphia.
BWI recorded a $6.16 cost per enplaned passenger in fiscal 2005, positioning it as one of the least expensive large hub airports in the nation. The airport's favorable cost structure serves to offset concern regarding the presence of several competing airports in the service area as it makes the airport an attractive option for low-cost airlines seeking to expand service into the Baltimore-Washington area.
Additions to the airport's parking stock combined with a large passenger base has yielded strong cash flow from parking operations, with debt service coverage well above the rate covenant despite being under forecasted levels. Fiscal 2005 parking revenues provided approximately 2.10 times (x) coverage of debt service and Fitch calculates that fiscal 2005 revenues would cover maximum annual debt service (occurring in 2016) 1.70x, above the bonds' 1.25x rate covenant. The MAA had previously forecast coverage of approximately 2.50x in its 2002 forecast. Fitch notes that management has added language to its current parking operator contract which provides additional legal protection by clearly defining the parking contractor as an agent of the MAA in its administration of parking revenues and funds. However, increased off-airport parking competition, which tempers the MAA's pricing ability, volatility in the leisure passenger market, and bankruptcy risk from the private parking operator remain credit risks.
The narrow revenue stream and limited flexibility provided by PFC receipts represents the primary credit risk related to these bonds. As the airport currently levies the PFC at the maximum rate allowed by federal law, total revenues generated from the charge are dependent on the level of passenger traffic at the airport. PFC collections for fiscal 2005 totaled approximately $42 million and would provide an estimated 3.55x coverage of debt service on the series 2003 bonds once principal payments begin in fiscal 2007. Based on forecasted growth rates, PFC revenue is expected to provide at least 3.55x debt service coverage through 2013. The growth of low-cost service at competing airports is expected to temper these forecasts; however, Fitch estimates that the airport could sustain a decline of 60% in PFC revenue from the fiscal 2005 level and meet its debt service obligations. Furthermore, MAA management has demonstrated conservatism in its historical leveraging of PFC revenues and does not expect to significantly lever down this revenue stream.
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