Fitch Affirms Greater Orlando Aviation Authority, FL's Sr. Revs at 'AA-'; Outlook Stable

Fitch Ratings affirms the 'AA-' rating on the Greater Orlando Aviation Authority (GOAA, or the authority), Florida $890 million in outstanding senior revenue bonds. The Rating Outlook is Stable.

GOAA also has $82.8 million outstanding in parity bank loans, series 2013A and 2013B, which are not rated by Fitch.

The rating reflects the airport's position as a leading origination and destination (O&D) market, with a strong traffic base of over 17 million enplanements and a diverse carrier mix providing stability through the recent downturn. GOAA benefits from a conservative debt structure with minimal variable rate exposure; low leverage of 2.2x; and stable debt service coverage expected to be above 1.6x and 1.5x, respectively, for senior and all obligations in the medium term. GOAA is currently revising its capital program and financial plan, and future additional borrowing is likely as the airport considers the timing of its South Terminal Project; however, this uncertainty is partially mitigated by the airport's strong liquidity position of 795 days cash on hand.

Key Rating Drivers:

Revenue Risk - Volume: Stronger

Stable Traffic Levels With Diverse Carrier Mix: The airport's high level of O&D traffic of 17.4 million enplanements has provided stable performance in recent years. Enplanements are influenced by tourism and leisure but have been largely flat in recent years, with a 1.7% decline seen in 2013 and a 0.5% decline seen for the first nine months of fiscal 2014. The airport benefits from a well-diversified mix of carriers, with the largest carrier (Southwest/Airtran combined) representing approximately 30% of enplanements.

Revenue Risk - Price: Stronger

Competitive Cost Structure: The airport has a relatively competitive airline cost structure, with a total cost per enplaned passenger (CPE) of $5.65 in 2013. The 2014 CPE is expected to be $5.42, and 2015 is budgeted at $6.95. Following the expiration of the airport's hybrid use and lease agreement in October 2013, GOAA has been setting rates by resolution. The resolution has no expiration date, and provides for a compensatory rate-making methodology for use of terminal facilities and a residual rate-making methodology for airfield. Carriers may also sign a three-year rate agreement, which entitles them to a share of remaining revenues after the payment of debt service, operating expenses, and required fund deposits. Fifteen carriers have signed the rate sharing agreement, representing approximately 92% of passenger traffic.

Infrastructure Development/Renewal: Midrange

Capital Program May Expand: The 2013-2018 capital improvement plan (CIP) currently totals $1.1 billion, and includes $386 million in projects previously approved by the airlines. Major projects include the South APM Project; improvements to the north terminal complex; and improvements to Airside 4. The South Terminal Project is not included. The current plan is expected to be 54% debt funded (GARBs and PFC-backed), with the balance coming from grants and internal funds. The CIP is currently being updated, and Fitch will review the updated program and associated plan of finance when it is available.

Debt Structure: Stronger

Conservative Debt Structure: The airport has a strong debt structure, with over 90% fixed rate debt (100% on the senior lien) and a manageable amortization profile that delevers rapidly after 2018.

Financial Metrics

Strong Financial Profile: The airport has stable financial operations drawing from diverse sources of operating revenues, adequate senior lien debt coverage at 1.63x in 2013, and relatively low overall leverage at 2.2x net debt to cash flow available for debt service (CFADS). Coverage is expected to remain above 1.6x and 1.5x, respectively, for senior and all obligations in the medium term, though Fitch notes a revised forecast is being developed by the authority in the context of its updated CIP, and will review when available.

Peer Group

GOAA's peers include other south Florida airports with similar market characteristics, such as Tampa Hillsborough County (rated 'A+' by Fitch) and Broward County Fort Lauderdale (rated 'A'), with GOAA's higher rating reflecting a stronger liquidity position, lower leverage, and stronger all-in coverage metrics.

Rating Sensitivities:

Negative - Unexpected downturns or volatility in airport traffic operations.

Negative - Erosion of the airport's current strong financial position and rate-setting flexibility.

Negative - Issuance of South Terminal project debt before it is clear that traffic demand exists to support the investment could lead to rating pressure.

Negative - Modifications to the five-year capital plan that alter leverage requirements.

Positive - Given the airport's strong rating, upward rating movement is unlikely.

Credit Summary:

Orlando is one of the nation's busiest O&D airports, serving 17.4 million enplaned passengers in fiscal 2013. O&D traffic makes up the bulk of the airport's enplanements at about 95%, benefiting from demand for local tourist destinations and convention business as well as the expanding local economy. Fiscal 2013 enplanements were down 1.7% over a year prior. For the first nine months of fiscal 2014 through May, enplanements are down 0.5% as compared to the same period in fiscal 2013. International enplanements were 1.96 million in 2013, up 5.2% over 2012 (follows an increase of 9.9% from 2011). Service is now offered to 36 international destinations.

Operating revenues increased by 3.8% to $380.6 million in fiscal 2013, building on 2.3% revenue growth in fiscal 2012. Signatory airline revenues increased by 5.0%, non-signatory airline revenues increased by 6.3%, and non-airline revenues (including car rentals, parking, concessions, and hotel revenues) increased by 3.3%. Resulting debt service coverage levels for fiscal 2013 were 1.63x on senior debt and 1.56x on all obligations, slightly down from 2012 results but in-line with Fitch's expectations.

For the first six months of fiscal 2014 through March, operating revenues are up 3.9% over the same period a year prior. Management's latest estimates for 2014 indicate operating revenues will also be 3.1% above budget. For the same period, operating expenses are up 0.6% over a year prior. Management's latest estimates for 2014 indicate operating expenses will be flat compared to budget. Management estimates 2014 coverage will be 1.92x for senior bonds and 1.78x all in (vs 1.73x and 1.63x budgeted).

The authority continues to maintain strong balance sheet flexibility with $432 million of unencumbered fund balances as of March 2014, equating to 795 days cash on hand based on fiscal 2013 operating expenses. CPE remained relatively low at $5.65 in 2013, and management estimates 2014 CPE will be $5.42. The 2015 budget indicates an increase in CPE to $6.95. Both the cash reserves and the 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.

The 2013-2018 CIP currently totals $1.1 billion and includes $386 million of projects previously approved by the airlines. Major projects include $470 million for the South APM Project; $411 million for the north terminal complex; $114 million for Airside 4; $76 million for Airfield projects; and $14.5 million for other projects. The current plan is expected to be 22% funded with GARBs (prior and future), 32% with PFC-backed debt (prior and future); 19% with PFC paygo, and 27% other funds (grants, GOAA funds, and other funds). The current program excludes the $999 million south terminal project, which management indicates will not be built until the airport hits triggers of 40 million total passengers and 2 million inbound international passengers. An updated CIP is expected to be released in fall of 2014; Fitch will review this plan, along with proposed sources and uses of funds, when it becomes available.

Security:

The bonds are secured by a pledge of net revenues generated from the operations of the airport. PFC revenues, limited to a maximum of 1.25x annual debt service for PFC-eligible projects financed through airport revenue bonds, are also pledged.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--Rating Criteria for Infrastructure and Project Finance (July 12, 2012);

--'Rating Criteria for Airports' (Dec. 13, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=856354

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