The Airport Credit Outlook Peter Stettler Ricondo & Associates, Inc. National Federation of Municipal Analysts National Conference April 19, 2012 Las Vegas, Nevada
The Outlook for Airports Recent Trends Agenda Airport Credit Metrics Passenger Demand Capital Development / Bond Issuance Near-term Airline Seat Capacity Future considerations 2
Ricondo & Associates, Inc. - Overview Founded in 1989 Nationally recognized, minority-owned aviation consultancy Only business is airport and aviation consulting services Aviation consulting services offered: Business/Financial Planning Facilities and Operations Planning Environmental Planning Number of R&A bond feasibility studies included in a bond Official Statement since 2007 52 Studies Number of R&A airport clients associated with studies since 2007 22 Airports Dollar amount associated with bond issues since 2007 $14.7 Billion 3
Key Airport Credit Metrics Trends from FY 2001 to FY 2010 Moody s FY 2010 Airport Medians Indicate that between FY 2001 and FY 2010 Debt per enplaned passenger increased from $53.62 to $76.33 Total Operating Revs Per Passenger increased from $15.30 to $22.36 The Operating Ratio Improved from 63% to 67% Days Cash on Hand Increased from 406 days to 489 days Low of 332 days in 2003 Cost per Enplaned Passenger increased from $4.77 to $7.04 FY 2010 represents a decrease from the FY 2009 median CPE of $7.34 Debt Service Coverage declined from 1.93x to 1.62x Source: Moody s Investor Service, US Airport Medians for FY 2010, November 4, 2011 Downward rating actions have outpaced upward rating actions over past 5 years 4
In 2001 FAA and Industry Expected Strong Growth 1,200 Enplanements (millions) CAGR 4.0% 1,000 800 CAGR 3.8% 600 400 200 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Actual 2001 FAA Forecast 5
Actual Passenger Volume Essentially Flat 2001-2011 Reflects Economic Conditions During the Decade 900 800 700 600 500 400 300 200 100 - Passengers (millions) Compound Annual Growth Rate 0.8% Economic Indices 1Q 2001 = 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 500 450 400 350 300 250 200 150 100 50 0 Passengers (Rolling 12 mos) National GDP (Current $) Jet Fuel (ppg) National Average Air Fare Note: Jet Fuel, National GDP and National Average Air Fare are indexed, with 1Q 2001 = 100 Sources: U.S. Bureau of Transportation Statistics (Passengers, Jet Fuel Price, National Average Air Fare); U.S. Bureau of Economic Analysis (National GDP) 6
FAA Forecast Trending Lower 1,200 Compound Annual Growth Rate 2001 Forecast: 4.0% 2008 Forecast: 3.2% 2012 Forecast: 2.8% 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2001 Forecast 2008 Forecast 2012 Forecast Actual Source: FAA Aerospace Forecasts FY 2001, FY 2008 and FY 2012 7
ACI-NA Capital Survey Indicates Moderating Capital Plans $80 $70 $60 $50 $40 $30 $20 $10 $0 5-Year Capital Needs by Hub Size $ Billions $49.5 $37.6 $69.9 $74.4 $46.5 $55.3 $39.9 $17.1 $13.3 $8.9 $8.4 $3.5 $6.3 $5.8 $8.1 2005 2007 2009 2011 Small Medium Large Source: Airports Council International - North America, Capital Needs Surveys 2005, 2007, 2009, 2011 $56.9 2011 Funding Sources (all airports) Airfield 51% Bonds 39% PFC 24% AIP 16% State / Local 6% Cash 5% Other 10% 2011 Planned Uses (all airports) Maint. 17% Stands. 16% Capacity 18% Terminal 28% Other 12% Surface Access 9% 8
Selected Capital Improvement Programs Announced or Ongoing Capital Programs Airport Amount Philadelphia International $6.4 billion Chicago O Hare International $6.4 billion Metropolitan Washington Airports Auth. $5.1 billion Los Angles International $4.1 billion Hartsfield-Jackson Atlanta International $3.9 billion Dallas Fort Worth International $3.3 billion Ft. Lauderdale Hollywood International $1.5 billion Phoenix Sky Harbor International $1.3 billion San Diego International $1.2 billion Denver International $900 million Source: Citigroup, 2011 Airport Finance Year in Review, January 2012 9
Airport Borrowing Down Significantly in 2011 Total Airport Bond Volume By Tax Status ($ Billions) 20 20 18 16 14 12 Airport debt outstanding reported to the FAA increased from $45.6 billion in 2001 to $74.9 billion in 2010 (small, medium & large hubs). 15 10 5 0 2008 2009 2010 2011 2012 - Q1 AMT Non - AMT Taxable 10 8 By Purpose ($ Billions) 6 20 4 2 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Q1 Source: Securities Data Co. (Courtesy of Piper Jaffray & Co., Inc.); Citigroup, 2011 Airport Finance Year in Review, January 2012; FAA Form 127 data 0 2009 2010 2011 2012 - Q1 New money Refunding Combined 10
Airports Continue to Diversify Their Revenue Streams Airport Revenues Fiscal Years 2001-2010 $16 $ Millions % Total 57% $14 56% $12 55% $10 $8 $6 54% 53% $4 $2 Compound Annual Growth Rates 2003 2010 Airline Revenues 3.2% Non Airline Revenues 4.4% 52% 51% $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Airline Revenues Non-airline Revenues Airline Revenue as % of Total 50% Source: FAA Form 127 Data, accessed Oct. 5, 2011 (note FY2009 and after may not be comparable to earlier periods) 11
Looking Forward Airlines Continue to Right Size Airline Seat Capacity 1Q 2008 3Q 2012 1,040 1,020 1,000 980 Industry (Millions) Airlines (Millions) 240 220 200 960 180 940 160 920 140 900 120 880 2008 2009 2010 2011 2012 Industry American Delta United USAirways Southwest 100 Note: Industry includes: American, Alaska, JetBlue, Delta (inc. Northwest), Air Tran, Frontier (inc. Midwest), Allegiant, Hawaiian, Spirit, United (inc. Continental), US Airways, Virgin America and Southwest. Source: Official Airline Guide 12
15.0% Large Hubs Showing Resilience Percentage Change in Large Hub Scheduled Seat Capacity 2007-2011 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% HNL TPA LAS DTW ORD SAN SLC MDW MSP PHX PHL IAH IAD MCO EWR DFW LGA LAX SEA FLL BWI JFK ATL DCA BOS DEN MIA SFO CLT 2007-2008 2008-2009 2009-2010 2010-2011 2007-2011 Source: Official Airline Guide 13
40% Medium Hubs Second Tier Connecting Hubs Downsized Percentage Change in Medium Hub Scheduled Seat Capacity 2007 2011 20% 0% -20% -40% -60% -80% CVG ONT OAK RNO SJU SJC PVD MEM BUR PIT SMF MCI ABQ OGG TUS STL CLE PBI SNA IND BDL JAX CMH RDU PDX BNA RSW ANC OMA SAT DAL BUF AUS HOU MKE MSY Source: Official Airline Guide 2007-2008 2008-2009 2009-2010 2010-2011 2007-2011 14
120.0% Small Hubs - Mixed Results Percentage Change in Small Hub Scheduled Seat Capacity 2007-2011 100.0% BLI 80.0% 60.0% 40.0% 20.0% 0.0% GSP LGB CHS SFB GRR FAR HSV ACY AVL -20.0% -40.0% ISP MHT ITO GPT SGF KOA GSO BOI LIH SBA All others -60.0% Source: Official Airline Guide 15
What to focus on going forward Strength of economic recovery Remains prime driver of demand for air travel Modest growth going forward? Airport finances Focus remains on developing non-airline revenue Capital needs moderating at least in short term Federal funding considerations PFC adjustment AIP Funding Municipal bond provisions (AMT holiday, Build America Bonds, loss of tax exemption) Airline industry factors Fuel prices Capacity restraint Financial performance Consolidation (Integration) Regionalization Growing influence of network alliances 16