Affirmation of airport bond rating fuels Fredericks’ optimism

John Howell
Posted 11/6/14

Passenger traffic is down at Green Airport, but that isn’t curbing Kelly Frederick’s enthusiasm over the future of the state airport.

“We’re in the right place,” the president and CEO of …

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Affirmation of airport bond rating fuels Fredericks’ optimism

Posted

Passenger traffic is down at Green Airport, but that isn’t curbing Kelly Frederick’s enthusiasm over the future of the state airport.

“We’re in the right place,” the president and CEO of the Rhode Island Airport Corporation said last week.

Part of Frederick’s optimism can be attributed to Fitch Ratings recent affirmation of RIAC’s BBB+ rating on approximately $217 million in outstanding revenue bonds. Had they been downgraded, RIAC would have likely faced added debt carrying costs.

“I’m really pleased,” Fredericks said of the report.

Another factor that has Fredericks thinking positively is the number of available airline seats out of Green. He said seat capacity for January 2015 is up 2 percent from January of this year.

Fitch said the rating “reflects a small market airport that has experienced weakening traffic trends in recent years due to competition in the greater New England air trade service area.” The report says Green has a higher than average cost of enplanement (CPE), an amount calculated by dividing the number of boarding passengers into cost of operations at Green. The projected CPE for fiscal year 2015 is $12.50.

As additional negatives, Fitch said the decline in enplanements is likely to put pressure on airline costs and would lead to the consideration of a downgrade; that RIAC is faced with higher than anticipated debt issuance; and a decline in cash flow coverage levels could lead to a lower rating.

The most current passenger traffic report shows year-to-date traffic at 2.7 million as of September, compared to 2.9 million for the same nine months last year, a decline of 6.24 percent.

On the other hand, air cargo continues to grow. Total cargo for the nine months was 19.5 million pounds, a 3.62 percent increase from the 18.8 million pounds for the same period last year.

Southwest Airlines continues as the dominant carrier at Green with 42.5 percent of the market, followed by US Airways with 24.7 percent. JetBlue, the newest major carrier at Green has 6.7 percent of the market.

Fredericks sees blue skies. He said RIAC is closely watching revenues and, as an example of the attention given to costs, pointed out that RIAC was able to finance construction of the $33.2 million deicing fluid recovery system project entirely with RIAC revenues through the Clean Water Finance Agency. He said the preferred rates offered by agency enabled RIAC to reduce debt costs.

Fredericks also pointed to the decision of Condor Airlines to start seasonal service to Frankfurt, Germany next spring.

“I’m more optimistic than I was six months ago,” he added.

As he has done in the past, Fredericks reasoned with the infrastructure improvements like the extension of the main runway and the Interlink, Green is well positioned to take advantage of growth in traffic. He forecast that “future growth is going to be substantial.”

Fredericks wasn’t ready to guess that lower fuel prices could trigger lower fares and a resurgence in traffic. He said fuel represents only 4 percent of an airline’s costs and is not a major factor.

A spokeswoman for RIAC said Tuesday that Fredericks would provide more details on the position of Green Airport when he makes a report to elected officials and the RIAC board on “air service development” later this month.

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