Fitch affirms the underlying 'A+' rating on
approximately $11 million airport revenue bonds issued by the City of
El Paso, Texas (the city). The bonds are supported solely by net
revenues of El Paso International Airport (the airport) and amortize
through 2016. The Rating Outlook is Stable.
The 'A+' rating reflects the airport's consistent financial performance, low debt burden, sizeable liquidity and limited future capital needs. The rating also incorporates the airport's role as the principal facility serving the west Texas region and its function as an integral transportation mode for the region's maquiladora or twin-plant manufacturing industry. Credit concerns center on the historically volatile nature of the airport's enplaned passenger base and on the weak demographic profile of the air service area.
Low annual debt service, significant non-aviation revenue generation and a favorable compensatory agreement have all contributed to consistent operating surpluses and allowed the airport to fund its ongoing capital improvements with minimal recourse to debt. Fiscal 2005 net operating revenues of $10 million generated a 33% operating margin for that year. The margin was somewhat lower than prior years as the airport lowered airline rates to maintain the lowest possible cost base for tenant airlines. Concurrently, management has bolstered non-aviation revenue growth by developing the airport's property to add industrial parks, hotels and other assets linked to the regions' manufacturing base. Non-aviation revenues comprised 53% of total operating revenues in the fiscal 2005.
The airport has not issued new money revenue bonds since 1996 and as a result has an extremely low debt burden of approximately $11 million, well below the average of $250 million for other medium-hub airports. Furthermore, in fiscal 2004 the airport used passenger facility charge and other funds to defease approximately $19 million of outstanding revenue bonds, and refinanced its debt in 2003 to both lower debt service and restructure for lower debt service costs in fiscal years 2006 and 2007. Debt service coverage was 3.86 times (x) in fiscal 2005 and is expected to be above 10x starting in fiscal 2006 throughout the life of the bonds given maximum annual debt service of $1.4 million. Low debt service costs have been one of the factors contributing to the airport's low passenger airline cost base of $4.07 per enplaned passenger for fiscal 2005.
Airport terminal and airfield capacity is estimated to be adequate through near- to medium-term and result in modest capital needs of $98 million over the next five years. Projects will be funded through a combination of federal grants, PFC revenues and airport cash. Management may consider a $10 million bond issue for a parking facility sometime after 2012 if future demand is significantly above forecasted levels.
The airport serves as the only viable air service option for the west Texas and southern New Mexico area, as the nearest potential competitors are located at least 250 miles away. Passenger growth has been somewhat volatile in the past 10 years due to a combination of airline market re-alignments and shifts in the regional economy. The airport's leading carrier Southwest Airlines (51% of fiscal 2005 enplanements) significantly reduced its transfer activity at the airport in the late 1990's, causing traffic to drop 13% to 1.6 million enplanements between 1996 and 1998. Traffic fell a further 27% to 1.2 million enplanements between 2000 and 2003 as the area was particularly hard hit during the national recession. Trends for fiscal years 2004 and 2005 show an overall 15% increase, with expectations for moderate 3-4% growth going forward. Despite the airport's lower enplanement base, Fitch expects little change to the airport's financial profile given its low cost base, minimal debt burden and significant non-airline revenue generation.
Despite improvement in its economy since the recession, the city of El Paso (general obligation bonds rated 'AA-') has historically been characterized by high unemployment rates and low per capita income levels. The city's 2005 unemployment rate was 6.9% and its 2004 per capita income levels were 66% and 71% of the state and nation averages, respectively. Offsetting these trends is the city's low cost of living and growing population base. Additionally, the city and the airport are expected to benefit from the addition of 50,000 army personnel and family members to the nearby Fort Bliss military installation.
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.
The 'A+' rating reflects the airport's consistent financial performance, low debt burden, sizeable liquidity and limited future capital needs. The rating also incorporates the airport's role as the principal facility serving the west Texas region and its function as an integral transportation mode for the region's maquiladora or twin-plant manufacturing industry. Credit concerns center on the historically volatile nature of the airport's enplaned passenger base and on the weak demographic profile of the air service area.
Low annual debt service, significant non-aviation revenue generation and a favorable compensatory agreement have all contributed to consistent operating surpluses and allowed the airport to fund its ongoing capital improvements with minimal recourse to debt. Fiscal 2005 net operating revenues of $10 million generated a 33% operating margin for that year. The margin was somewhat lower than prior years as the airport lowered airline rates to maintain the lowest possible cost base for tenant airlines. Concurrently, management has bolstered non-aviation revenue growth by developing the airport's property to add industrial parks, hotels and other assets linked to the regions' manufacturing base. Non-aviation revenues comprised 53% of total operating revenues in the fiscal 2005.
The airport has not issued new money revenue bonds since 1996 and as a result has an extremely low debt burden of approximately $11 million, well below the average of $250 million for other medium-hub airports. Furthermore, in fiscal 2004 the airport used passenger facility charge and other funds to defease approximately $19 million of outstanding revenue bonds, and refinanced its debt in 2003 to both lower debt service and restructure for lower debt service costs in fiscal years 2006 and 2007. Debt service coverage was 3.86 times (x) in fiscal 2005 and is expected to be above 10x starting in fiscal 2006 throughout the life of the bonds given maximum annual debt service of $1.4 million. Low debt service costs have been one of the factors contributing to the airport's low passenger airline cost base of $4.07 per enplaned passenger for fiscal 2005.
Airport terminal and airfield capacity is estimated to be adequate through near- to medium-term and result in modest capital needs of $98 million over the next five years. Projects will be funded through a combination of federal grants, PFC revenues and airport cash. Management may consider a $10 million bond issue for a parking facility sometime after 2012 if future demand is significantly above forecasted levels.
The airport serves as the only viable air service option for the west Texas and southern New Mexico area, as the nearest potential competitors are located at least 250 miles away. Passenger growth has been somewhat volatile in the past 10 years due to a combination of airline market re-alignments and shifts in the regional economy. The airport's leading carrier Southwest Airlines (51% of fiscal 2005 enplanements) significantly reduced its transfer activity at the airport in the late 1990's, causing traffic to drop 13% to 1.6 million enplanements between 1996 and 1998. Traffic fell a further 27% to 1.2 million enplanements between 2000 and 2003 as the area was particularly hard hit during the national recession. Trends for fiscal years 2004 and 2005 show an overall 15% increase, with expectations for moderate 3-4% growth going forward. Despite the airport's lower enplanement base, Fitch expects little change to the airport's financial profile given its low cost base, minimal debt burden and significant non-airline revenue generation.
Despite improvement in its economy since the recession, the city of El Paso (general obligation bonds rated 'AA-') has historically been characterized by high unemployment rates and low per capita income levels. The city's 2005 unemployment rate was 6.9% and its 2004 per capita income levels were 66% and 71% of the state and nation averages, respectively. Offsetting these trends is the city's low cost of living and growing population base. Additionally, the city and the airport are expected to benefit from the addition of 50,000 army personnel and family members to the nearby Fort Bliss military installation.
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.