Fitch Rates Dallas-Fort Worth Airport Revs 'A+'; Outlook Stable

Business Wire, Feb 7, 2006

NEW YORK -- Fitch Ratings assigns an 'A ' rating, with a Stable Rating Outlook, to the cities of Dallas and Fort Worth, Texas' approximately $325 million Dallas-Fort Worth International Airport (DFW or the airport) joint revenue refunding bonds, series 2006A scheduled for negotiated sale on or about Feb. 23 through a syndicate led by Goldman Sachs and Citigroup. Proceeds will refund a portion of airport's outstanding debt. The bonds are secured by the gross revenues generated by the operation of DFW. Fitch also affirms its 'A ' rating for the airport's $3.76 billion of outstanding joint revenue bonds.

The 'A ' rating and Stable Outlook reflects the airport's strong primary market area that generates significant demand for air service; its favorable geographic location for both east-west domestic and international connecting operations; its strong financial management demonstrated by its competitive cost structure relative to other major connecting airports, and its minimal future capital needs. Significant credit concerns include the dominant position of Fort Worth-based American Airlines (American, issuer default rating of 'CCC' by Fitch) and resultant high proportion of connecting traffic, which makes the airport vulnerable to changes in that carrier's operating strategies; the potential for additional competition from Dallas Love Field National Airport (Love) for locally generated passengers; and an above average debt burden associated with the airport's nearly completed capital program.

DFW ranks as the nation's fourth busiest airport and served 29.5 million enplaned passengers in fiscal 2005. This represents only a slight 1% increase from fiscal 2004, a period which includes Delta Air Lines' (Delta) decision to eliminate its connecting operations at the airport. As a result, American, which increased service at the airport in response to Delta's actions, represented 81% of total enplanements in fiscal 2005, up from 63% in fiscal 2004. While American's level of concentration does pose a credit concern, Fitch believes that the airport's sizeable local market combined with its favorable geographical location would prompt other carriers to enter the market should American significantly reduce its operations at DFW.

A second potential credit concern for DFW centers on the efforts of Southwest Airlines (Southwest, issuer default rating of 'A' by Fitch) and other entities to remove the flight restrictions imposed on Love under federal legislation known as the Wright Amendment. Recent changes to the amendment allow direct flights to Missouri, the eighth state eligible for such service from Love. Southwest quickly initiated service to both Kansas City and St. Louis from Love, prompting American to announce it will resume service at the airport to directly compete with Southwest. Other airlines, including American, are likely to initiate or increase service at Love should the restrictions be significantly repealed, increasing competition between the airports for the local passenger base. How such changes may affect DFW will be influenced by the nature and timing of any future legislation and the reaction of the airlines. However, as the physical limitations of Love constrain the level of operations achievable at that airport, Fitch believes American will likely act to capitalize on the advantages afforded by DFW and its established route network as part of its competitive response to any alterations to the amendment.

The airport's consistently sound financial performance reflects the residual nature of its use and lease agreement. The airport's cost per enplaned (CPE) passenger for fiscal 2005 equaled a competitive $5.91, up from $3.97 in fiscal 2004 as debt service related to recent capital improvements entered the rate base. Based on the airport's rising debt service commitment and projected decline in enplanements in fiscal 2006, reflecting American's recent schedule adjustments, management estimate's the CPE will rise to approximately $8.30 in fiscal 2006.

The airport's $2.7 billon capital program is nearing completion, with less than 10% of the projects remaining. The airport opened its new international terminal D and 'Skylink' inter-terminal transportation system, which represent the largest components of the program, in the last fiscal year. As the airport's future capital needs are modest, Fitch expects DFW's debt burden to gradually decrease over time.

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