RatingsDirect. Secondary Contact: Andrew Bredeson, Centennial ;

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1 S&P Global Ratings RatingsDirect San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria Primary Credit Analyst: Paul J Dyson, San Francisco (1) ; paul.dyson@spglobal.com Secondary Contact: Andrew Bredeson, Centennial ; andrew.bredeson@spglobal.com Table Of Contents Rationale Outlook Specific Capital Improvement Projects Bond Provisions OCTOBER 5, I

2 San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria Credit Profile US$ mil 2nd series rev bnds (San Francisco Intl Arpt) ser 2017 A due 05/01/2047 Long Term Rating A+/Stable New US$ mil 2nd series rev bnds (San Francisco Intl Arpt) ser 2017B due 05/01/2047 Long Term Rating A+/Stable New US$ mil 2nd series rev rfdg bnds (San Francisco Intl Arpt) ser 2017D due 05/01/2026 Long Term Rating A+/Stable New US$ mil 2nd series rev bnds (San Francisco Intl Arpt) ser 2018A due 05/01/2024 Long Term Rating A+/Stable New US$ mil 2nd series rev bnds (San Francisco Intl Arpt) ser 2017C due 05/01/2027 Long Term Rating A+/Stable New Rationale S&P Global Ratings assigned its 'A+' long-term rating to San Francisco City and County Airport Commission's $346 million series 2017A (AMT), $235 million series 2017B (Non-AMT; government purpose), $46 million series 2017C (taxable) second series revenue bonds. We also assigned our 'A+' long-term rating to the commission's $151 million series 2017D (AMT) and $126 million series 2018A (AMT) second series revenue refunding bonds. In addition, S&P Global Ratings affirmed its 'A+' long-term rating and underlying rating (SPUR) on the commission's other parity debt outstanding. Finally, we affirmed our 'AA+/A-1 +'and 'AA+/A-1' dual ratings on various other bonds outstanding, reflecting the application of our joint criteria, assuming low correlation. All bonds were issued for the San Francisco International Airport (SFO). The outlook is stable. The commission will use bond proceeds to finance a portion (about $290 million) of costs to complete various projects, repay $300 million in commercial paper (CP) notes issued to finance capital projects, refund about $310 million in various bonds outstanding, and fund termination payments ($13.9 million) for swaps associated with various refunded bonds. The ratings reflect our view of the airport's: Deep and diverse service area economy consisting of 8.8 million residents, with strong income and education levels, a large and diverse employment base, healthy tourism trends, and strong job growth in recent years; Very strong enplanement trends that we expect will continue, albeit at a slower pace; Growing high-yield origin and destination (O&D) market and strong market position, with minimal competition for international passengers in the Bay Area; OCTOBER 5, I

3 San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria Large, international hub designation, with historically strong international traffic growth and capacity for expanded service; Good liquidity position, with $376 million, or 293 days, of operational cash on hand as of unaudited fiscal 2017; Adequate-to-good debt service coverage (DSC) around 1. lx to 1.2x when excluding transfers from the contingency account; and Strong management team that we believe has been successful in controlling costs, expanding and diversifying air carrier service, and maintaining strong financial metrics. Partly offsetting the above strengths, in our view, are the airport's: Increasing leverage and significant additional capital needs, most of which will be financed by additional bond proceeds; Current and projected high cost structure; and Risks related to concentration in its primary carrier, United Airlines, although SFO is an important hub to United and the airline has been making considerable investments at the airport. The bonds are secured by the net revenue of the airport. Of total debt outstanding, 10% is variable rate (synthetic fixed) with 90% traditional fixed-rate debt. Subsequent to the issuance of the aforementioned bonds, the synthetic fixed portion is projected to decline to just 6% of total pro forma debt. The airport has $461 million of letter-of-credit (LOC)-supported variable-rate debt, all hedged by six interest rate swaps (mark-to-market $69 million unfavorable as of Aug. 31, 2017), three of which will be terminated with $13.9 million in bond proceeds. The swaps, in our view, pose low contingent liquidity risk to the airport, given the rating differential between the underlying rating on airport's revenue bonds and the rating triggers that would prompt the airport to make a swap termination payment if the swap valuation at the time of the termination is not in the airport's favor. SFO has a $500 million CP program (subordinate lien) that is backed by four irrevocable direct-pay LOCs. Repayment of CP notes is a subordinate obligation to the bonds. As of Aug. 31, 2017, $330 million in CP was outstanding. The airport, located 14 miles south of downtown San Francisco in an unincorporated area of San Mateo County, occupies approximately 2,383 acres on a 5,171-acre site. (The remaining acreage is undeveloped tidelands.) The existing domestic passenger terminal complex totals 2.7 million square feet, and the international terminal totals 2.5 million. The airport has 91 operational gates and four runways, and 13,840 public (nonemployee) parking spaces. The airport is owned and operated as an enterprise department by the City and County of San Francisco. A five-member airport commission, the members of which are appointed by the mayor to four-year terms, governs the airport. SFO continues to record impressive enplanement growth rates, especially considering the airport's significant size and activity levels. Total enplanements increased a strong 4.9% to a record 26.9 million for unaudited fiscal 2017 on the heels of 6.7% growth in audited fiscal Growth rates in fiscals years 2013 to 2015 were likewise good at 4.0%, 3.2%, and 4.5%, sequentially. The compound annual growth rate for enplanements has been 4.6% during the past five fiscal years. The commission, along with input from its consultant, is forecasting enplanement growth of 2.7% for fiscal 2018, 2.0% for fiscal 2019, 1.7% for fiscal 2020, and 1.6% annually for 2021 to 2023, for a compound annual growth rate (CAGR) of 1.9% for 2017 to We believe the forecast is conservative and achievable, given recent trends and the airport's strong market position. Likewise, we view the financial forecast as reasonable given that it is based on the enplanement forecast. SFO's actual enplanement CAGR of 4.6% since 2013 has easily exceeded the CAGR forecast of OCTOBER 5, I

4 San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria 1.8% in International enplanement growth has been even more impressive, growing an average of 6.8% since 2012, with a forecast CAGR of 2.6% during 2017 to According to Airports Council International, SFO was the seventh-most-active airport in the U.S. for total passengers served in 2016, and, of the largest 10 airports, was first in enplanement growth (4.2%) over the 12-month period ended Feb. 28, SFO is also the fourth-largest O&D airport in the U.S. with 80% O&D traffic. The large hub airport is also one of the principal gateways for the Pacific traffic in the U.S. SFO has the highest share of O&D traffic of any connecting large hub airport. We consider this large percentage of O&D traffic to be stable. SFO was the second-fastest-growing U.S. international gateway in fiscal We believe that the large, wealthy service area (almost 9 million people) with strong employment trends and a deep and diverse economy has historically provided a robust traffic base, and the area serves as a popular tourist and convention destination. The San Francisco Bay Area is the fifth-most-populous combined statistical area (CSA) in the U.S., and had a very low 4.0% unemployment rate as of June 2017, below that of the state ( 4. 7%) and U.S. (4.4%). Per capita effective buying income (EBI) for San Francisco County is 85% above the national average, with that of the San Francisco CSA 50% above. The San Francisco CSA led the 10 largest CSAs for per capita EBI for 2015, per capita EBI growth from 2010 to 2015, employment growth from 2010 to 2016, and median home prices in Leading industries in the regional economy include high tech, social media, health care, biotechnology, finance, foreign trade, and higher education. Tourism is also a major driver of the economy with 25.2 million visitors for San Francisco alone in 2016, driving the hotel occupancy rate up to 88%. In fiscal 2017, 52 passenger and six cargo-only airlines served the airport. United and United Express accounted for what we consider a concentrated 44% of total enplanements in fiscal 2017 (and 24% of operating revenue in fiscal 2016), with Virgin America accounting for 9.3% and American Airlines (including US Airways) accounting for 8.2%. Overall, the leading 10 airlines accounted for 86% of enplanements in fiscal In terms of international enplanements, United represented 31.0% in fiscal 2017, with Air Canada second, at 7.6%. Domestic traffic has shown impressive growth, in our opinion, particularly in the past five years. Management attributes this growth primarily to the introduction of service in fiscal 2007 by three low-cost carriers (LCCs)--Southwest Airlines, JetBlue, and Virgin America--that grew to 19% of the market in fiscal 2016 from 6% in fiscal SFO provided nonstop service to 84 domestic and 49 international destinations in fiscal 2017, both figures having steadily grown over the years. A total of 33 new average daily flights were added in 2017 alone, including five international flights. United Airlines' commitment to SFO is very strong with continued long-term investments being made and SFO gaining the largest share of United's international capacity growth since In terms of competition, SFO is the second-largest international gateway on the West Coast and has a very strong competitive position in the San Francisco Bay Area versus Oakland International Airport (OAK) and San Jose International (SJC), not only for domestic traffic (enplanement and deplanements) but even more so for international. The domestic market share for the airport was 64% for fiscal 2017 and 91% for international traffic, or 69% overall. SFO's market share has remained strong and relatively steady, although it has dipped slightly since fiscal 2014, when it was near 71% given relatively stronger traffic growth at OAK and SJC. The airline use-and-lease agreements between the airport and 44 signatory airlines took effect July 1, The term OCTOBER 5, I

5 San Francisco City and County Airport Commission San Francisco International Airport; Afrport; joint Criteria is 10 years, and the agreements include a residual cost rate-setting methodology, airline review of capital projects, common-use facilities in the international terminal, and annual service payments to the city. The international terminal is joint use, but the domestic terminals are a mixture of preferential, joint, and common use--not exclusive use-allowing airport management to optimize gate utilization. We consider the use-and-lease agreements credit neutral. The airport's capital improvement plan (CIP), approved on Sept. 5, 2017, is very sizable and a credit risk, but we also recognize the need to add gates and to expand and modernize terminal space to meet growing demand. Given the projects' importance to the airport and the airlines, and given its size, the commission is increasingly focusing on risk mitigation and avoidance of cost overruns. The airports often experiences gate constraints during peak periods, with passenger traffic up 46% over the past 10 years. In addition to meeting growth needs, the CIP aims to address safety and security, improve information technology infrastructure, improve the customer experience, and maintain the airport's strong competitive position. The CIP includes $6.2 billion in spending over the next 10 years (fiscal years 2018 to 2027). The CIP was recently broken down further into two components: the Ascent Program--Phase I, and the fiscal 2018 Infrastructure Projects Plan. The Ascent Program--Phase I consists of projects from the fiscal 2017 capital plan plus a new $739 million contingency reserve to cover unanticipated project needs. The Infrastructure Project Plan includes projects that address newly identified needs. Capital needs have grown considerable recently; in fiscal 2016, the airport's 10-year CIP (fiscal years 2016 through 2025) totaled $4.5 billion. Subsequent phases of the Ascent Program are likely to be derived from the commission's Airport Development Plan (ADP), now complete and under environmental review. Including $1.2 billion in prior years spending, the overall CIP totals $7.4 billion. The forecast indicates that approximately $6.5 billion in new airport revenue bonds (including the series 2017 bonds) will be issued through 2022 to fund $5.5 billion, or 73%, of the CIP, with prior funding covering $1.2 billion, or 16%. The remaining 12% will be covered by grants, future rev~nue bonds beyond 2022, and other sources such as hotel bonds and special facility bonds. Annual borrowing will range from $1.1 billion to $1.9 billion. We take a negative view of the significant debt that the airport will need to issue to finance the capital plan. We will monitor the effects that these projects may have on the airport's financial metrics. We do consider the airport's proven record of delivering large capital projects on time and on budget to be a mitigating factor. Financial performa~ce has been very consistent over the past several years as a result of conservative planning and forecasting, prudent expenditure management, and strong activity levels at the airport. DSC as calculated in the indenture (including rolling coverage and pledged passenger facility charge, or PFC, revenue) was an estimated 1.37x in unaudited fiscal 2017, down slightly from 1.44x in audited fiscal Pledged PFC revenue designed to pay debt service in unaudited fiscal 2017 totaled $23.4 million. Excluding the transfer from the contingency account, coverage was 1.20x in audited fiscal 2016 and 1.14x in unaudited fiscal 2017, and is forecast to decline to 1.09x in fiscal DSC at these levels it is not a significant credit risk, in our view, given the residual airline agreements. We view management's financial forecast and its assumptions as reasonable, largely given our similar view on management's traffic forecast. Audited 2016 unrestricted cash and investments totaled $412 million, equal to 339 days' operations, which we consider OCTOBER 5, I

6 San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria good. Estimates for fiscal 2017 indicate a decline to $376 million in unrestricted cash, or 293 days of operations. Management reports that overall cash balances will increase in fiscal 2018 as a result of a $28 million addition to its contingency fund. Liquidity is supplemented by CP capacity estimated at $4 70 million once the aforementioned bonds are issued. The airport has a high cost structure, in our opinion. The cost per enplanement (CPE) was estimated at $16.46 in fiscal 2017, down slightly from $16.52 in audited fiscal Management's projections indicate the CPE will rise to $26.42 in fiscal While we consider this rate to be high, we understand that this is an average rate for all carriers at the airport and that, based on the facility used (e.g., the international terminal or a domestic terminal), the rate is higher or lower. This is important when considering the effect of the cost on certain airlines' service decisions. In addition, strong nonairline revenue growth in recent years has helped to contain CPE; non-airline revenue has almost doubled since We also believe that actual CPE figures will likely be lower than forecast because, in our view, enplanement levels will likely exceed conservatively forecast figures. Management also continues to control costs and make the airport more competitive, by increasing concession revenue (especially as planned for Terminal 1) and attracting new carriers and service. The airport's debt per enplanement is also high, in our view, at $179 as of fiscal With the net effect of the planned issuance of an additional $6.5 billion and some principal amortization, management forecasts debt per enplanement for fiscal 2023 at $325, which we consider very high. Outlook The stable outlook reflects our anticipation that United Airlines will continue to operate a major hub at SFO, passenger demand will remain stable, and liquidity will remain good. The prudent implementation of a capital plan that maintains management's estimates of additional debt will also be an important rating factor, in our opinion. Upside scenario Given our view of SFO's significant additional debt needs and current debt profile, we do not expect to raise the ratings during the next two years. Downside scenario We could lower the rating if enplanements decline materially, reducing the airport's ability to manage rising debt, or if the airports' DSC significantly declines on a sustained basis. Specific Capital Improvement Projects Significant projects in the Ascent Program--Phase I of the CIP include the renovation of Terminal 1 at a projected cost of $2.3 billiqn, the renovation and reconfiguration of the eastern and western side of Terminal 3 ($1.0 billion), and the International Terminal Refresh project to improve the terminal operational efficiencies ($272 million). The commission is also constructing a multistory office block for its own administrative uses and other tenants, and a project dedicated to increasing customer experience and concession revenue opportunities. Major groundside projects include a new airport-owned hotel and hotel AirTrain station, to be funded by $278 million in hotel bonds and $260 million in hotel special facility bonds. The hotel is slated to open in summer An additional $202 million project includes an OCTOBER 5, I

7 San Francisco City and County Airport Commission San Francisco International Airport; Airport; joint Criteria extension of the AirTrain system to connect to the existing and new long-term parking garages and the new long-term parking garage itself ($161 million). The balance of projects includes projects geared toward safety and security, technology, utility and energy efficiency projects, and taxiway improvements. Major projects in the Infrastructure Projects Plan include net jet fuel storage tanks ($52 million) and various airfield improvements. Bond Provisions The bonds are secured by the airport's net revenue and are issued under the 1991 resolution. We consider the bond provisions credit neutral. Net revenue includes that which the commission earns from operating the airport in accordance with generally accepted accounting principles, but explicitly excludes special facility revenue and PFCs, unless specifically pledged. The airport has $4.8 billion in parity debt outstanding. The 1991 resolution allows for the establishment of a contingency account that can be used for debt service, operations and maintenance, and certain other airport costs. The commission is not obligated to replenish this account in the event funds are withdrawn. The balance in this account as of June 30, 2017 was $95 million (equal to about 22% of maximum annual debt service, or MADS). The commission plans to increase the balance of the contingency fund by $128.5 million in future years from proceeds of the 2017 bonds, as well as from future bonds. Funds in this account are deposited as of the last business day of each fiscal year and can be applied to satisfy the coverage requirement under the rate covenant. The rate covenant requires net revenue in each year to be at least sufficient to pay debt service and all required annual service payments to the city. In addition, together with any transfer from the contingency account, net revenue must equal at least 1.25x debt service on the 1991 resolution bonds. This contingency account transfer effectively allows for rolling coverage on the bonds. In years in which amounts owed after debt service decrease relative to the size of debt service, actual coverage from current-year rates and charges can fall and be offset by the contingency fund. The size of the transfer is limited to 25% of MADS for purposes of calculating the additional bonds test (ABT). While the contingency account may be used to meet the rate covenant, we expect (and management projects) that generating revenue will equal at least lx debt service from rates and charges, without the use of the contingency account. If the contingency fund were to be drawn down for any reason, the commission has the authority to set rates and charges to 1.25x debt service and continue to do so until the contingency fund is rebuilt, if ever. The ABT requires that projected net revenue will meet the rate covenant for the proposed debt or that historical revenue with the transfer will cover outstanding and proposed debt by 1.25x. This test, as with nearly all other tests for airports in the U.S., allows for the use of projected revenue, which, in essence, means some demonstration of compliance of the 1.25x multiple by an airport consultant. In terms of the debt service reserve funds, the 1991 master resolution established the original reserve account, which provides additional security for all bonds outstanding under the 1991 master resolution, except for issues 36A, 36B, 36C and the series 2009C, 2010A, and 2010D bonds. The reserve requirement for the original reserve account is MADS. The series 2009C and 20 lod bonds are secured by a separate 2009 reserve account. Issue 36A, 36B, 36C and the 201 OA bonds do not have a reserve account but are secured by LOCs. The proposed series 2017 A and 2017B OCTOBER 5, I

8 San Francisco City and County Airport Commission San Francisco International Airport; Airport; Joint Criteria bonds will also be secured by the original reserve account, but the proposed series 2017C, 2017D, and 2018A bonds are contemplated to be secured by a new 2017 reserve account, with the reserve requirement at the least of 10% of par, MADS, or 125% of average annual debt service. Ratings Detail (As Of October 5, 2017) San Francisco City & Coty Arpt Comm, California San Francisco Intl Arpt, California San Francisco City & Cnty Arpt Comm (San Francisco International Airport) (wrap of insured) (FGIC & AGM) (SEC MKT) San Francisco City & Cnty Arpt Comm (San Francisco Intl Arpt) arpt rev rfdg bnds rmktd Long Term Rating A+/Stable Affirmed San Francisco City & Cnty Arpt Comm (San Francisco Intl Arpt) AIRPORTS Long Term Rating A+/Stable Affirmed San Francisco City & Cnty Arpt Comm (San Francisco Intl Arpt) JOINTCRIT Long Term Rating AA+ I A-1 Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) Long Term Rating A+/Stable Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB Long Term Rating AA+ IA-1 + Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB Long Term Rating AA+ I A-1 Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB Long Term Rating AA+ IA-1 Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB (ASSURED GTY) Long Term Rating AA/NR/Stable Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB (ASSURED GTY) Long Term Rating AA/NR/Stable Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) VRDB 368 Long Term Rating AA+ I A-1 Affirmed San Francisco City & County Airport Commission (San Francisco International Airport) (ASSURED GTY) San Francisco City & County Airport Commission (San Francisco International Airport) Many issues are enhanced by bond insurance. WWW. STANDARDANDPOORS.COM/RATINGS DIRECT OCTOBER 5, I ss1

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