Oct 9 (The following statement was released by the rating agency)
Fitch Ratings affirms the city of Houston, TX's outstanding $323.5 million airport system special facilities revenue bonds (Continental Airlines Inc. Terminal E Project) series 2001 at 'B'. The series 2001 bonds are fixed-rate revenue bonds with a final maturity in 2029. The Rating Outlook has been revised to Positive from Stable, reflecting the Positive Outlook on United Continental Holdings, Inc. (UAL), whose rent payments secure the bonds.
KEY RATING DRIVERS:
UAL'S FINANCIAL STRENGTH: UAL has demonstrated continued improvements in its underlying financial strength, debt position and liquidity since the closing of the United-Continental merger on Oct. 1, 2010. The combined carrier has maintained a strong utilization of the Terminal E facility. UAL has a Fitch Issuer Default Rating of 'B' and a Positive Outlook.
ESSENTIAL NATURE OF THE TERMINAL: Terminal E handles the majority (75%) of UAL's international operations and a large share (59%) of the total airline international traffic at George Bush Intercontinental Airport (IAH). IAH is a fundamentally strong airport (rated 'A+' on its subordinate lien revenue bonds with Negative Outlook) that serves a large base of both origination and destination (O&D) and connecting traffic, and is a major international gateway for UAL. IAH serves as the primary commercial airport for the metropolitan area and as a major system hub for UAL.
UNSECURED OBLIGATIONS OF UAL: The limited revenue stream and the unsecured guarantee of UAL are mitigated to a limited degree by the re-letting provisions allowing the airport to retake the facility in the event of an early lease termination.
LACK OF DEBT SERVICE RESERVE: Bondholders do not have access to cash reserves or structural enhancements.
--Any changes in the credit of UAL would have a direct effect on the rating. See related analysis on United Continental, dated May 16, 2013, available at www.fitchratings.com.
Special facilities rent paid by UAL pursuant to the special facilities lease secures the Continental Terminal E Project bonds.
IAH serves as the primary commercial airport for the metropolitan area and is presently the only Houston-area airport providing international service. Southwest intends to use the city's Hobby airport for some international service, which may create a more competitive environment. IAH's traffic has held up relatively well through the recent downturn, with modest declines in enplanements at a 1.3% compound annual growth rate (CAGR) between 2007 and 2012. The calendar years 2012 and 2013 (through August) saw a respective 0.7% and 1% decrease in year over year enplanements. Airport-wide, international traffic continued to see a more robust recovery than domestic; international enplanements increased by 1.5% while domestic traffic was down 1.3% in 2012.
UAL has continued to operate its major system hub at the airport since the merger with Continental in October of 2010, without any major scheduling or hubbing changes; no significant changes in traffic profile have occurred as a result of the merger, though the airline has reduced capacity somewhat as it increases load factors and rationalize its nationwide system. UAL accounted for approximately 83% of IAH's passengers and 78% of total international traffic in 2013 year to date through August.
Terminal E is a 600,000 square-foot facility with 23 gates that can handle both domestic and international passenger traffic. The terminal is an essential facility for the airport itself as well as for UAL's international operations.
Terminal E handles about 27% of total IAH traffic while the terminal's international traffic of 5.2 million passengers in 2012 represented 13% of all airport passengers and 59% of all international traffic. Traffic at Terminal E decreased 8% through the first eight months of 2013. This is in-line with UAL's 5.5% reduction in traffic at IAH overall and reflects, in part, the reduction of service on some international routes (Paris, Mexico) and a shift of some domestic service to terminal C.
In May 2013, Fitch affirmed UAL's IDR at 'B' and revised the Rating Outlook to Positive. The Positive Outlook reflects progress that UAL has made in moving past many of its integration issues following the 2010 merger of United and Continental; expectations for improving profitability and free cash flow (FCF) over the intermediate term as integration costs recede; systemic improvements in the U.S. airline industry stemming from consolidation and capacity discipline; and an improved balance sheet, including recent debt reduction. UAL's credit profile is supported by its leading position in many of its primary markets, solid liquidity, and a growing unencumbered asset base. More information on the Fitch rating of United Continental Holdings, Inc. and the most recent rating action press release dated May 16, 2013 can be found at www.fitchratings.com.
The Continental Terminal E Project bonds financed the construction and development of Terminal E Intercontinental, which UAL uses as an international connection hub and Latin American gateway. Terminal E was built in two phases and fully opened in January 2005.