NEW YORK--(BUSINESS WIRE)--Aug. 1, 2005--Fitch Ratings affirms the underlying 'A+' rating on the City of Atlanta, Georgia's approximately $2.2 billion senior lien airport revenue bonds issued for Atlanta Hartsfield -- Jackson International Airport (the airport) and the 'A' rating on the city's approximately $1.1 billion airport passenger facility charge (PFC) revenue and subordinate lien general revenue bonds (hybrid bonds). The Rating Outlook for all of the bonds is Stable. Net general revenues of Atlanta Hartsfield Jackson International Airport (ATL, or the airport) secure the general revenue bonds. A senior lien on PFC revenue and a subordinate lien on general revenues of the airport secure the hybrid debt. Fitch is reviewing the underlying ratings in conjunction with the sale of approximately $550 million commercial paper notes, scheduled for pricing Aug. 2 (for more information, see Fitch's previously released rating action dated July 18, 2005).
The long-term underlying ratings continue to reflect ATL's status as the world's busiest airport (41.8 million enplanements during 2004); the economic strength of the Atlanta metropolitan area; competitive, though increasing airport facility costs; and an experienced management team with proven expertise in implementing a large CIP and handling multiple airline bankruptcy filings. The underlying ratings also incorporate concentration risk relating to the airport's reliance on Delta Air Lines (Delta, senior unsecured debt rated 'C', Negative Rating Outlook by Fitch), for approximately 78% of total enplanements (fiscal 2004), and the airport's high proportion of connecting passengers relative to origination & destination traffic. The Stable Outlook is based upon ATL's fundamentally sound economic and demand profile, which helps to mitigate above-average airline concentration risk and supports the financing and implementation of an extremely large capital improvement program.
Operationally, ATL continues to fair well as it has been the main recipient of increased activity from Delta's reorganization efforts, which include the closing of its hub at Dallas -- Fort Worth International Airport. Enplanement levels are up 5.2% through the first four months of 2005, building on a 5.4% increase in 2004. Hartsfield-Jackson continues to be the world's busiest airport in terms of passenger volume.
ATL has also maintained its record of consistently sound financial operations in 2004, as operating revenues increased 9.0% to $273.1 million. Operating expenses rose a modest 4.4%, with net revenues providing 1.6 times (x) coverage of annual debt service. The airport's cost per enplaned passenger remains low at $2.56 in 2004, however, this figure is not directly comparable to other airports as terminal operations and maintenance expenses, which are paid by the airlines through the Atlanta Airport Terminal Corporation, are not included in the calculation.
The most significant credit concern facing ATL is the troubled financial condition of Delta. In its recently released second quarter earnings, the airline reported a operating loss of $129 million and a deteriorating cash position, which has heightened the possibility that Delta may seek protection under Chapter 11 of the US Bankruptcy code. A chapter 11 filing by the airline is not likely to have an immediate effect on the financial operations at the airport, as Delta will likely continue to operate its full schedule and may even add flights at the Hartsfield-Jackson, its largest domestic hub.
However, ATL does face long-term risks in the event of a Delta bankruptcy, particularly should the airline significantly alter its operations or, in the worst-cast event, be forced into liquidation. As connecting traffic represented 67% of total enplanements at the airport in 2004, with Delta accounting for most of this volume, any sizable adjustment in the carrier's operations would influence overall enplanement levels and the financial operations of the airport. In the event of a liquidation of the carrier, Fitch believes other airlines would quickly act to serve the local market, but recovery of national connecting traffic may be prolonged due to the weakened state of the other domestic airlines.
The airport is in the midst of a $6.7 billion capital improvement program, one of the largest in the nation. While the airport plans to finance a considerable portion of the program through passenger facility charge revenue, bond financing represents more than half of resources at $3.5 billion ($1.4 billion GARB and $2.1 billion hybrid).
As a result, Fitch expects the recent erosion in the airport's historic cost advantage to continue.
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