U.S. Airports: Trends Indicate Another Difficult Year Ahead

Our outlook for the US airport sector is negative. This outlook is based on our view that a struggling economic recovery will limit enplanement growth, which will pressure financial flexibility; that continued airline consolidation will result in reduced seat capacity; and that federal funding reauthorization is unlikely to be resolved in an election year.»

Declining enplanements.

Enplanement trends turned negative in the second half of 2011 and airline industry and economic conditions will likely cause them to continue downward in 2012. Moody’s expects enplanement growth to be in the +1% to -4% range.» Economic conditions do not favor growth. US and global economic conditions remain sluggish and contain substantial risks particularly concerns about how Europe will manage its fiscal crisis. Successful management of the European financial crisis or stronger than expected growth in the US economy would push the outlook toward stable.»

Airport financials have weakened.

Airport financial health remains resilient, but the difficult conditions of 2008 through 2011 have reduced financial flexibility. We see financial metrics declining in 2012, or remaining flat at best.» Federal funding support remains uncertain. Congress has yet to pass a long term FAA reauthorization bill making long-term capital planning difficult for US airports that all rely on some kind of federal funding for capital improvements.

Moody’s expects the credit impacts of these factors to depend on the trajectory of the US and global economies and does not expect the sector to stabilize until consistent positive enplanement growth is achieved. The sector outlook has been negative since August 2008 and we expect it to remain negative until enplanement growth reaches a sustained growth rate of +3% or higher.

Note: Industry outlooks are not explicit signals of the likely direction of ratings in an industry. They are a view of the business conditions that factor into our ratings.

INFRASTRUCTURE2 JANUARY 24, 2012INDUSTRY OUTLOOK: US AIRPORTS: TRENDS INDICATE ANOTHER DIFFICULT YEAR AHEAD

Key IndicatorsMoody’s outlook for the US airport sector remains negative due to the uncertainty surrounding three key growth drivers: economic conditions, airline capacity expansion, and federal funding. While the stabilized US economy led to limited enplanement growth across the sector during 2010 and early 2011, growth in 2012 is likely to be hampered by reduced airline capacity and uncertain economic conditions. Most rated US airports lost some financial resiliency during the recent economic downtown, and therefore have a reduced capacity to manage further enplanement declines. In addition, the ongoing fiscal difficulties for all levels of US government are likely to reduce the availability of grant funds for capital projects.

US AIRPORTS: TRENDS INDICATE ANOTHER DIFFICULT YEAR AHEAD

Economic Conditions Hamper Demand Recovery

The US economy remains in a fragile state with high unemployment, high public, corporate and personal debt, and uncertain growth prospects.