Fitch Places Delta U.S. Hub Airports on Negative Outlook

Fitch believes that the voluntary filing by Delta for reorganization under Chapter 11 of the U.S. Bankruptcy Code poses only minor immediate risks to most general airport revenue bonds.

NEW YORK--(BUSINESS WIRE)--Sept. 15, 2005--Fitch believes that the voluntary filing by Delta Air Lines Inc. (Delta, or the airline) for reorganization under Chapter 11 of the U.S. Bankruptcy Code poses only minor immediate risks to most general airport revenue bonds. However, credit concerns at individual airports, in particular, facilities where Delta operates major connecting hubs, including Atlanta Hartsfield-Jackson International Airport, Cincinnati-Northern Kentucky International Airport, and Salt Lake City International Airport (unrated by Fitch), may increase during the course of the airline's bankruptcy proceedings should the reorganization lead to operating decisions that significantly reduce its schedule. Consequently, Fitch affirms the ratings and revises the Rating Outlook to Negative from Stable on the following bonds:

-- City of Atlanta, Georgia's approximately $2.2 billion airport general revenue bonds (rated 'A+' by Fitch) and $1.1 billion airport passenger facility charge (PFC) and subordinate lien revenue bonds (rated 'A' by Fitch), issued on behalf of Atlanta Hartsfield-Jackson International Airport (ATL);

-- Kenton County Airport Board, Kentucky's approximately $376 million airport revenue bonds (rated 'A' by Fitch), issued on behalf of Cincinnati-Northern Kentucky International Airport (CVG).

As is common in the early stages of the bankruptcy process, Delta continues to operate its full schedule and will need to fulfill its obligations of its use and lease agreements at the various airports where it operates, though there may be some small amounts of prepetition rents owed. Delta has secured approximately $1.7 billion of debtor-in-possession financing from General Electric Commercial Finance and Morgan Stanley and is expected to receive $350 million through an agreement with American Express. Of the total $2.05 billion in financing, $980 million will be used to repay existing secured financing from GE and American Express, leaving the airline with approximately $1.07 billion in additional liquidity. As bankruptcy courts generally allow an airline to continue making payments to the airports it serves, Fitch expects airports will continue to receive payments from Delta on a timely basis for the near term.

The risks to individual airport finances may increase over the course of the bankruptcy process as Delta undertakes a reorganization that may result in considerable operational changes. Particularly vulnerable are Delta's hub airports that rely on the scheduling decisions of the airline to generate significant levels of transfer traffic to complement local origin and destination (O&D) traffic.

Delta and its regional affiliates accounted for 78% of total enplanements at Atlanta Hartsfield-Jackson in 2004. While transfer traffic represented a very high 67% of the airport's total traffic, the majority of which is generated by Delta, Atlanta's important role in the national aviation system, favorable geographic location, and long-standing status as the transportation hub of the southeastern U.S. enhances the likelihood that other airlines would increase service at the airport should Delta materially scale back its operations there. Furthermore, as Delta maintains its headquarters in Atlanta, and has recently increased both domestic and international flying from the airport, it is likely ATL would be one of the last stations where drastic service reductions would occur. Fitch notes the airport has approximately $481 million in unrestricted cash on hand at 2004 fiscal year-end, which could be used to bolster operations if needed.

This content continues onto the next page...

We Recommend