Fitch Affirms Atlanta Airport's GARBs at 'A+' & PFC Sub Liens at 'A'; Outlook Stable

Fitch Ratings affirms the 'A+' rating of the City of Atlanta, Georgia's approximately $1.5 billion senior lien airport general revenue bonds (GARBs) issued for Atlanta Hartsfield-Jackson International Airport (the airport) and the 'A' rating on the city's approximately $610 million airport passenger facility charge (PFC) revenue and subordinate lien general revenue bonds (hybrid bonds). Net general revenues of 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. The Rating Outlooks for the above bonds are revised to Stable from Negative.

The ratings reflect the airport's consistent status as the world's busiest airport with over 45 million enplanements, the economic strength of the Atlanta metropolitan area that provides for approximately 15 million of annual original and destination (O&D) enplaned passengers, a steady history of relatively low airline costs, and a very healthy financial position in terms of coverage levels and liquidity. Credit risks center on the concentration risk relating to the airport's reliance on Delta Airlines (Delta; Issuer Default Rating [IDR]'B' with a Negative Outlook by Fitch) for 72% of total enplanements, the airport's high proportion of connecting passengers (66% in fiscal 2008), and the potential for additional borrowings to complete the construction of a new international terminal with an estimated cost of $1.2 billion. Further, the airport continues to retain a relatively high variable-rate exposure despite the early retirement of $364 million of auction-rate bonds in early 2008 covered from airport fund balances. Fitch notes that based on discussions with airport management, substantial portions of the remaining variable-rate debt - $490 million on senior lien GARBs - may be refunded in fixed-rate debt sometime over the next year. An additional $82 million of variable-rate hybrid bonds are anticipated to be repaid with grant proceeds in the next 18 months. These actions would help stabilize the debt interest costs associated with those bonds.

The Outlook revision to Stable reflects the airport's continued strong operational and financial profile. Debt service coverage on the senior GARBs was 1.98 times (x) while coverage on the hybrid bonds solely from PFC receipts was 3.5x. Despite the ongoing challenges in the aviation industry, the airport's traffic has largely held up well relative to other large hub airports due to continued strong O&D demand and building international service. Enplanements increased by 4.6% in fiscal 2008 and have since come down modestly by 2% to 3% through the first 10 months of the current year. Fitch views Delta's ongoing commitment to the Atlanta market, particularly for its growing connecting and international service, as an important credit consideration.

Over the course of the past two years, Delta has emerged from bankruptcy and has since merged with Northwest Airlines. At this time, the combination of both carriers is not believed to have an adverse impact on the airport's traffic and operations. The airport's low cost structure - $3.19 per enplanement in FY2008 - is viewed as a key source of financial flexibility although airline rates are likely to rise should the airport complete the proposed $1.2 billion international terminal project. Project funding sources continue to be reviewed although initial phases of construction have already begun and debt issuance may cover up to half of the project costs.

Over the past decade, the airport has consistently ranked as the nation's busiest airport as noted by serving 45.3 million enplaned passengers in fiscal 2008. Since 2003, ATL has experienced a 2.8% average annual increase in enplanements. The growth has been more weighted by increased connection activity and expanded international service. O&D traffic represents a stable 35% of the airport's traffic base, equivalent to about 15 million enplanements. The airport's high level of connection traffic is influenced by Delta's large presence. As a result, the airport is more reliant on the operating decisions of Delta although there is a long history to the carrier's commitment to the Atlanta market. The current airline use agreement expires in September 2010 and a renewal would be viewed as a supportive action to the airport, particularly given that the airport has spent nearly $3 billion in capital projects since 2000, including $400 million towards the construction of the new 12-gate international terminal.

Atlanta airport's financial profile is a key element of strength to the credit. Both the cash reserves and the cost per enplanment(CPE) levels have been well managed over the past five years with the airport generating significant revenues from non-airline sources, including concessions and PFCs. Airlines contribute a relatively low 40% of total operating revenues while PFC collections at current traffic levels exceed $160 million per year. While airline payments increased by 15% in fiscal 2008, primarily to cover rising debt service and operating requirements, the current airline cost is still low for a large hub airport at $3.19 per enplanement. Debt service coverage levels for the senior lien GARBs over the past three years have ranged from 1.98x to 2.27x. With regards to the hybrid bonds, PFC receipts in fiscal 2008 provided a strong 3.5x coverage level of debt service. With over $140 million of surplus cash flow generated from PFC revenues, the airport has considerable flexibility to apply such funds for PFC-eligible capital projects or debt service payments. Currently, the airport also maintains strong flexibility with approximately $320 million of unrestricted fund balances (based on March 31, 2009 unaudited figures), equivalent to nearly two times of current operating expenses.

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