Fitch Rates Metro Washington Airports' $250MM Revs 'AA', Outlook Stable

Business Wire, June 6, 2008

NEW YORK & CHICAGO -- Fitch assigns a 'AA' rating to the Metropolitan Washington Airports Authority's (the authority) $250,000,000 airport system revenue bonds, series 2008A (AMT), scheduled for negotiated sale on or about June 11th. Fitch also affirms the 'AA' long-term underlying rating on the authority's approximately $3.9 billion of outstanding airport system revenue bonds. The Rating Outlook for the authority's bonds is Stable. The bonds are secured by the net revenues of the airport system, which consists of Washington - Dulles International Airport (Dulles) and Washington Reagan National Airport (National). Proceeds will refinance the authority's outstanding commercial paper, providing long term financing for portions of the authority's ongoing capital construction program (CCP).

The 'AA' rating reflects the strong and growing air trade area, the sustained strong and stable financial operations of the airports, an improving concessions program that should enhance financial flexibility, Dulles' role as an international gateway airport, and the demonstrated ability of management to guide a complex capital program. The rating also reflects the competitive position and complementary service offerings of both Dulles and National and conservative forecasting practices that demonstrate sound coverage of debt service through the capital program. Primary credit concerns include the moderate airline concentration risk at both authority airports and the planned significant future issuance of debt to support of the CCP and the resultant rising costs passed onto the airlines. Additional concerns are presented by the current state of the domestic airline industry, and recent announcements by the carriers of significant capacity reductions in the fourth quarter of 2008, which are likely to result in reduced travel activity system-wide.

Enplanements rebounded strongly at Dulles in 2007, after a significant decline in activity following the January 2006 demise of Independence Air which had served to stimulated demand in the market through its aggressive pricing strategy. The initiation of service by Independence, the former Atlantic Coast Airways and operator of United Express service at Dulles, in 2004 spurred a 60% increase in enplanements from 2003-2005. With Independence leaving the market in 2006, enplanements declined by 15% for the year. However, as Independence identified a level of demand at the airport, other carriers including United Airlines (United), jetBlue Airways (JetBlue) and Southwest Airlines (Southwest) responded to their departure by initiating or adding service. As a result, Dulles experienced an 8% increase in enplanements in 2007 over 2006; however, first quarter 2008 data shows a 3.7% decrease in enplanements when compared to the previous year, which is mainly attributable to the U.S economic downturn.

United remains the largest carrier at Dulles, representing 62% of enplanements. The carrier has acted to increase international service at the airport, exploiting its dominant position in the nation's capital by adding flights to Beijing, China; Rome, Italy; and Rio de Janerio, Brazil in 2007. Foreign carriers have also increased service to Dulles, with Iberia Airlines initiating service to Madrid, Spain; Aer Lingus serving Dublin, Ireland; Qatar Airways serving Doha, Qatar; and Copa Airlines serving Panama.

National has also experienced a significant gain in enplanements, with 2006 traffic volume up 30% from 2003 as carriers used larger aircraft, experienced higher load factors, and were able to add a limited number of flights. Enplanement activity in 2007 at National was stable, as airport activity is restricted by federally imposed flight limitations. Enplanements through the first quarter of 2008 show a slight decline of 3% when compared to the first quarter 2007, and the authority expects relatively flat enplanement growth through 2010. US Airways remains the largest carrier at National, with 41% of the market in 2007. While the concentration levels of United and USAirways present some credit concern, the level of concentration is less pronounced when viewed on an overall basis, as United represented 37.4% of total system enplanements in 2007 while USAirways accounted for 18.0%.

The authority consistently generates healthy financial results, with an operating ratio near 40% on an annual basis. Debt service coverage is consistently well above the rate covenant of 1.25 times (x), with the authority generating coverage of 1.72x for fiscal 2007 (Dec. 31 year end). Similarly, in 2008 the authority expects debt service coverage to be 1.72x and remain near or above 1.60x through 2010. Cost per enplaned passenger equaled $12.11 at Dulles and $10.51 at National for the year

The authority is in the midst of its $7.1 billion (CCP), which covers the period from 2001-2016. Of this figure, $2.9 billion has already been spent. Major elements of the program include a new runway and automated people mover at Dulles; plans for a new Tier 2 concourse at Dulles, for which the authority is negotiating with United; and various airfield improvements and the rehabilitation of historic Terminal A at National. The authority expects to issue an additional $3.2 billion in debt in support of the program through 2015. The most recent feasibility study, conducted in 2007, indicates the signatory airline costs per enplaned passenger grow to $23 at Dulles and $14 at National in 2018, metrics which are in line with those for similarly sized facilities undertaking significant capital program. In addition, Fitch recognizes the modular nature of the CCP, which allows for cancellation or deferral of projects if needed.