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

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.

Delta and its affiliates represented nearly 95% of total enplanements at CVG as of July 2005, with the airline's hubbing activity leading to a disproportionately high level of connecting traffic at 72% of total passenger volume. While on Sept. 9, 2005, Delta announced that, effective Dec. 1, 2005, it will reduce total capacity offered in the Cincinnati market by 26%; the airline still plans to offer 440 daily flights to 122 worldwide destinations from the airport, making it the carrier's second largest hub behind ATL. A further pull-down in service during reorganization could affect operations. However, the airport benefits from an approximately $35.8 million cash cushion and boasts a competitive cost structure and advantageous Midwestern location, which could be marketed in attracting new or replacement air service.

At somewhat less risk are airports served by Delta that rely on local demand for air travel to drive their operations. In many smaller such markets, however, Delta extensively utilizes regional jets (RJs) where it reportedly has excess capacity. Should the carrier decide to rationalize or pare down this fleet while in bankruptcy, some smaller cities could lose service. The O&D nature of traffic in many of these markets does, however, increase the probability that another carrier or carriers may enter the market and provide service previously offered by Delta. Fitch will issue credit updates on these, and other airports, as warranted by events in Delta's bankruptcy proceedings.

In addition to the general airport revenue bonds at airports served by Delta, the bankruptcy filing presents implications for holders of the airline's $1.9 billion original par of special facility debt. The structure and security of special facility transactions vary considerably, from a simple guarantee of the airline, in which case the investor's claim ranks behind secured creditors with limited chance for recovery, to secured structures, such as mortgage, and leases, which may provide the investor with a much higher likelihood of recouping their investment.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

CONTACT: Fitch Ratings Douglas J. Kilcommons, 212-908-0740 (New York) Peter Stettler, 312-368-3176 (Chicago) Jessica L. Soltz-Rudd, 415-732-5616 (San Francisco) Brian Bertsch, 212-908-0549 (Media Relations, New York) KEYWORD: NEW YORKINDUSTRY KEYWORD: BANKING BOND/STOCK RATINGSSOURCE: Fitch Ratings

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