Fitch Rates Wayne County Airport Authority, Michigan's $145MM Revenue Refunding Bonds 'A'

Business Wire, April 15, 2008

CHICAGO -- Fitch Ratings has assigned an 'A' rating to Wayne County Airport Authority (the authority), Michigan's approximately $145 million airport revenue refunding bonds senior lien, series 2008A. Fitch has also affirmed the 'A' rating for the authority's approximately $2 billion of outstanding senior lien revenue bonds and the 'A-' rating for approximately $213.6 million of outstanding junior lien bonds. The Rating Outlook is Stable. All bonds are secured by a pledge of the net revenues derived from the operations of the authority, whose largest asset is Detroit Metropolitan Wayne County Airport (Metro). The series 2008A senior lien bonds will be sold the week of April 21. Proceeds from the issuance will refund all of the authority's outstanding series 2002A variable-rate demand debt.

The ratings for the authority reflect the airport's central geographic position, substantial airfield and terminal processing capability that position it well as a large hub, its minimal airport competition within the metropolitan area, and the solid source of non-airline revenue that sustains Metro's competitive cost structure. In addition, Metro's current construction of the North Terminal (to be completed in late 2008) positions the airport with modern facilities and adequate airfield and terminal capacity for the next 15 to 20 years. Remaining projects are expected to be funded through federal grants.

Credit concerns center on the dominant position of Northwest Airlines (Northwest), which operates one of its three domestic connecting hubs at Metro, and accounts for approximately 76% of total enplanements at the airport for fiscal 2007. Metro is particularly sensitive to changes in Northwest's operating strategy, particularly related to connecting traffic at the airport, as it has fully leveraged passenger facility charge (PFC) revenue to maintain its low cost structure. In addition, the recent merger announcement between Delta Airlines and Northwest creates uncertainty regarding changes to the combined airline's flight schedules, fleet, and airfares should such an agreement be consummated. However, Fitch believes that any such changes would take place over a considerable period of time providing management the opportunity to evaluate its position and make operating adjustments.

Other concerns include Metro's historical enplanement fluctuations as well as the Detroit region's weakened economy, exemplified by an unemployment rate of 7.6% compared to the nation at 5.2% in February 2008. This economic weakness may reduce demand for discretionary travel, particularly if high fuel prices lead to rising airfares, as well as business travel if the automobile manufacturers are further challenged.

Metro recorded 18.1 million enplanements in fiscal year 2007, a 1.7% increase over the prior year, largely generated by gains at low cost carrier (LCC) airlines such as Spirit, Southwest and AirTran, which grew at a 21.3% rate for the year. This followed a year of slower growth in 2006, reflecting a small reduction in the number of available seats as Northwest completed its bankruptcy proceedings and the nationwide increase in airline ticket prices.

Financial margins and metrics remain low but steady. The airport's net operating revenues provided 1.57 times (x) coverage of senior lien bonds in fiscal 2007, slightly higher than prior years.

Metro's operating margin, at approximately 20% for fiscal 2007, was below the median for comparable facilities. Fitch notes that management has been successful in its role as in independent authority in restraining operating expense growth through re-negotiated contracts, with operating expense increasing only 2.8% on average in the last three fiscal years. Operating revenues increased 3% on average annually for the same period. Overall airport operating costs to the airlines, as measured by the airport's cost per enplaned passenger (CPE), were a moderate $5.13 in fiscal 2007. Should Metro achieve its passenger and expense forecasts, the airport's cost per enplaned passenger should remain under $8.00 through fiscal 2012.

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