First-Ever Comparison Of Credit Ratings Between U.S. Airports And Airlines

Airports Council International - North America (ACI-NA) has released a white paper on the difference in credit ratings between U.S. airports and airlines. This Industry White Paper, Credit Ratings and Cash Reserves: How They Influence the Borrowing Costs of Airports, was prepared by Ricondo & Associates, Inc., with assistance from Piper Jaffray & Co. and Morgan Keegan & Co., Inc., in consultation with the ACI-NA Finance Committee.

"Maintaining high credit ratings is very important to the business viability of airports," said ACI-NA President Greg Principato. "A strong credit rating  not only provides a  reduction in borrowing costs but it also allows airports to maintain access to the municipal bond market, which is the primary funding source for airport capital projects."

The industry white paper released Thursday examined the historical basis for the strong credit ratings of airports, the difference in the credit ratings of airlines and airports, and the costs and benefits to airports of attaining different credit rating levels. Central to the debate is the different viewpoints regarding the level of cash reserves and debt service coverage required to maintain an airport's credit rating, and whether achieving such high ratings places costs on the airlines that outweigh the benefits.

The report concluded that while cash reserves are a significant factor used by the credit rating agencies and factor into the interest rates on bond issues, "their importance should not be overstated...other factors such as the economic underpinnings of the service area, market concentration, and future capital needs being as, if not more, significant in assessing credit quality."

The primary author of this White Paper, Peter Stettler, was particularly well qualified to lead this effort. Prior to joining Ricondo & Associates, Peter worked for over 10 years as Senior Director of Public Finance at Fitch Rating, one of the top three rating agencies. "The ACI-NA Finance Committee not only provides a platform for members to exchange information on important issues related to airport finance and performance benchmarking; the Committee also produces quality products that benefit the entire industry," said Principato. "The committee's involvement with this white paper on credit ratings and cash reserves is yet another testament to their importance to the aviation community."

FMI: www.aci-na.org