Fitch Affirms Burlington, Vermont $44MM Airport Revs at 'BBB+'

NEW YORK--(Business Wire)--
Fitch Ratings affirms the 'BBB+' rating on $44 million outstanding City of
Burlington, Vermont (the city) airport revenue bonds. The Rating Outlook is
Stable. The bonds are payable from net revenues generated by the operations of
Burlington International Airport (BVT, or the airport) and mature in 2029.

The 'BBB+' rating reflects a diverse mix of airline carriers, modest debt
burden, strong growth in non-airline revenues, and positive enplanement trends
in recent years. Credit concerns include the potential for significant future
leveraging to construct additional parking capacity, moderate competition from
other regional airports, a small passenger base and limited jet service
resulting in moderate volatility in historical enplanements. The rating also
incorporates BVT's substantial exposure and reliance on Canadian traffic
patterns, and weak financial management airport controls.

Since 2000, the airport's enplaned passengers have grown 9% annually, on
average, reaching a high of 726,000 in fiscal 2008. Much of the growth is
credited to JetBlue Airways, which started service at the airport in September
2000 with two daily flights and currently operates six daily flights. Despite
this recent growth, enplanement trends over the past 10-15 years show
volatility, as the loss of a single flight can negatively affect the airport's
small enplanement base. The airport competes for passengers with several
facilities, principally the Manchester, NH, and Albany, NY airports, both of
which offer similar service to that of BVT but serve more destinations.
Although, JetBlue's growth at Burlington in the last decade has reduced the loss
to these neighboring facilities, Manchester and Albany will most likely remain
attractive options for southern Vermont residents, while Burlington will remain
the airport of choice for the residents of the city and the surrounding area.
Importantly, Fitch notes that Burlington is one of only three domestic airports
experiencing growth for first-quarter 2009, reflecting the higher than average
utilization of the airport by Canadian passengers. The airport would be deeply
affected, however, should the airport become less attractive to Canadian
passengers, as enplanements and parking revenues would be significantly
affected.

Although BTV remains relatively unaffected by the downturn in the economy and
the current turmoil in the airline industry, Fitch continues to monitor these
factors for their impact on airport credit risk.

The airport's finances are adequate. From 2003 through 2008, operating revenue
growth has outpaced operating expense growth, with operating revenues and
operating expenses growing by 12% and 9%, respectively. Airport economics are
determined through a hybrid operating lease that is compensatory on the terminal
and residual for the airfield. Terminal operating costs may be adjusted every
year and airfield costs are adjusted annually to service any deficit from
terminal operating costs. While the airport is not contractually obligated to
offset terminal or airfield operating costs with revenues from non-airline cost
centers, management uses parking and rental revenues to maintain a low airline
cost structure. The policy is generally successful in keeping tenant airline
costs low while still maintaining adequate airport financial margins (including
a policy of at least 1.40 times [x] debt service coverage), but it also limits
the airport's ability to generate excess revenues and build financial
flexibility, necessitating the use of debt financing for all significant capital
projects at the airport. Overall, debt service coverage has been healthy despite
substantial increases in airport operating expenses due to higher salary and
wage expenses, deferred maintenance, and higher costs to maintain the airfield.

In fiscal 2007, the airport's cost per enplaned passenger was $4.13 and debt
service coverage was 1.63x. The airport expects debt service coverage to be
1.57x in 2008, slightly down from 2007, and has no projections for debt service
coverage in 2009, which Fitch views as a risk. The current Airline Use and Lease
Agreement in practice, which has not yet been signed by signatory carriers, will
expire in 2012 and expectations are that the new lease will follow both the
terms and practice of the current agreement.

The airport's three-year capital plan is estimated to cost $84 million and
primarily focuses on alleviating current parking constraints through debt
financing. Major funding sources for the airport include AIP funding and future
bond issuances, which will fund 40% and 56% of the plan, respectively. The
airport completed parking projects in 2003 and added approximately 900 new
garage parking spaces, but management currently estimates that during peak
periods approximately 1,400 vehicles are parked in overflow lots and areas due
to a shortage of parking spaces. Current terminal and airfield facilities are
estimated to adequately meet passenger demand through 2013 and management does
not anticipate additional capacity expansion during that period. Of the $84
million CIP planned, the airport estimates the new parking garage and associated
outlays will cost approximately $46 million and will be funded entirely through
future bond issuances. Although airport management has conveyed the flexibility
to stagger and possibly scale back some of the parking garage development,
particularly the environmentally-friendly elements of the proposed design, the
current parking constraints at the airport will require management to act in the
near term. However, should the airport double its debt burden and issue
revenue-supported bonds for the entire estimated project costs, the airport
would be substantially overleveraged and its financial flexibility would be
severely impaired.

Burlington International Airport (BTV) is classified by the Federal Aviation
Administration (FAA) as a small hub airport and is located 4 miles from downtown
Burlington, yet draws from a customer base in Vermont, New Hampshire, New York
and parts of Canada. BTV's facilities include two intersecting runways, an
115,000-square-foot terminal building, and 2,078 garage parking spaces and 1,500
surface parking spaces.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Vanessa Roy, +1-212-908-0508
Mike McDermott, +1-212-908-0605
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

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