TEXT-S&P affirms Ottawa Macdonald Cartier Int'l Airport 'A+' rating

Tue Jan 22, 2013 2:27pm EST

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Overview
     -- We are affirming our 'A+' long-term issuer credit and senior secured 
debt ratings on Ottawa Macdonald Cartier International Airport Authority.
     -- The ratings reflect our assessment of the authority's strong 
competitive position, light-handed regulatory framework, sound financial 
metrics, and adequate liquidity.
     -- The stable outlook reflects our expectation that Ottawa's passenger 
volumes will flatten in 2013, before recovering moderately in 2014.

Rating Action
On Jan. 22, 2013, Standard & Poor's Ratings Services affirmed its 'A+' 
long-term issuer credit and senior secured debt ratings on Ottawa Macdonald 
Cartier International Airport Authority (Ottawa or the authority), the 
operator of Ottawa Macdonald Cartier International Airport. The outlook is 
stable.

Rationale
The ratings on Ottawa reflect our view of the authority's strong competitive 
position, light-handed regulatory framework, sound financial metrics, and 
adequate liquidity. We believe significant airline customer concentration and 
unmitigated passenger volume exposure constrain the ratings.

In our view, Ottawa has a strong competitive position that contributes to 
stable and predictable operating cash flows. It has a monopoly on airport 
services in Canada's capital, the City of Ottawa, and surrounding region. It 
also has a high origination and destination passenger mix, at about 90%. As a 
result, its passenger volumes are tied closely to the performance of the local 
economy, which has shown exceptional long-term stability due to its large 
public sector. While government fiscal consolidation efforts are likely to 
depress local economic activity, we expect regional economic fundamentals to 
remain sound in the next two years, supporting the authority's passenger 
demand and revenues.

Like other Canadian airport authorities (CAAs), Ottawa has unimpeded 
rate-setting autonomy that provides tremendous financial flexibility. The 
authority can fully adjust rates without government approval, although it must 
give 60 days' notice to airport stakeholders. It can also seize aircraft for 
nonpayment of airport bills. This, together with its active and historically 
successful receivables management practices, reinforces its rate-setting power.

Ottawa also has a low aeronautical rate structure, which offers additional 
flexibility and stimulates travel demand. As a guiding principle, management 
uses incremental revenue from passenger growth to cover inflationary operating 
costs, filling any shortfall with aeronautical rate increases. On the capital 
side, it leverages or directly uses revenue from an airport improvement fee 
(AIF) on passengers to fund expansion work. It has managed both envelopes 
well, maintaining the lowest average aeronautical fees among tier 1 CAAs in 
2012 and a relatively moderate AIF of C$20 per ticket. We expect the authority 
to retain a strong competitive rate advantage in the next two years, 
notwithstanding its planned 3% aeronautical fee increase effective Feb. 1, 
2013.

Ottawa also has strong financial metrics relative to those of similarly-rated 
CAAs. By our estimates, its debt burden was about C$150 per enplanement in 
2012, while its indenture-based debt service coverage ratio (DSCR) was 2.2x. 
We expect these metrics to weaken moderately in the next two years, as the 
authority increases its bank facility draws to partly fund several capital 
projects. In particular, we expect Ottawa's debt per enplanement to reach 
approximately C$160 in 2014, well below the peak of C$170 it had in 2007.

However, we believe the authority has large airport client concentration that 
exposes its revenue base to airline strategy changes or financial 
difficulties. Its main client is Air Canada and its affiliates, which account 
for more than half its passenger base. The trend toward increasing market 
share of WestJet Airlines Ltd. and Porter Airlines Ltd. at the airport, 
particularly since 2008, has lessened Air Canada's concentration. 

In addition, we believe consistent strong passenger growth at the airport has 
introduced challenges, particularly in the international and transborder 
areas, that could require Ottawa to undertake the next round of major airport 
expansion ahead of the 2017 timeframe it predicted in its 2008 master airport 
plan. We believe these growing constraints temper to some extent the 
authority's flexibility to materially postpone or defer works to manage its 
financial metrics in the medium term.  

Outlook
The stable outlook reflects our expectation that Ottawa's passenger volumes 
will flatten in 2013, before recovering moderately in 2014. To the extent its 
traffic underperforms, or its outlook beyond two years deteriorates, we expect 
the authority to raise fees or cut discretionary spending to avoid material 
erosion in financial metrics relative to historical levels. We could revise 
the outlook to positive or raise the ratings if, all else equal, we came to 
expect Ottawa would strengthen its financial metrics in the next two years, 
with a debt per enplanement near C$100 and a DSCR consistently exceeding 2.0x. 
Alternatively, we could lower the ratings if the federal government introduced 
potentially negative changes to CAAs' regulatory environment, or we foresee a 
significant weakening in the authority's financial metrics versus historical 
levels in the next two years. We view both scenarios as unlikely.

Related Criteria And Research
     -- USPF Criteria: Airport Revenue Bonds, June 13, 2007
     -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 
9, 2010

Ratings List
Ottawa Macdonald Cartier International Airport Authority
 Issuer credit rating                  A+/Stable/--
 Senior secured debt                   A+


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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