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Jackson Evers gets mixed news on bond ratings

 

By TED CARTER

The debt rating for the Jackson Municipal Airport Authority got a “negative” outlook from Moody’s Investment Services last week but avoided a downgrade from Fitch Ratings Service.

The plus for the Airport Authority’s debt of approximately $39 million is a BBB+ maintained by Fitch. That rating came with a downgrade from A- in spring 2014 on news Southwest Airlines planned to depart the Jackson market.

Next, Fitch warned early in 2016 that a further downgrade would come if the Airport Authority failed to contain costs-per-passenger at Jackson Medgar-Wiley Evers International Airport. Apparently, the Authority contained those costs in the first several months of the year enough to satisfy Fitch.

But an upgrade is nowhere in sight, according to Fitch.

“The rating reflects a small enplanement base and operational performance vulnerable to carrier decisions,” Fitch said in an April 2015 assessment that kept in place the 2014 downgrade.

Moody’s maintained the Airport Authority’s Baa1 rating last week but revised the outlook to negative on expectations that a weakened local economy will prolong an already years-long period of passenger declines.

On the rating, Moody’s said the Baa1 “incorporates the stable yet weakened market position of the airport due to the elimination of its second largest carrier, Southwest Airlines, which has resulted in higher airline carrier concentration and a smaller enplanement base.”

Further, said Moody’s, the Baa1 rating “incorporates the airport’s importance to the regional economy.” Moody’s also noted the importance of the Airport Authority’s “solid liquidity position and limited additional debt plans.”

Moody’s said the change in outlook to negative from stable “reflects the weakening of the local economy, evidenced by deteriorating economic factors, which could potentially further prolong the negative enplanement trend of the last nine fiscal years. The negative outlook also reflects the expectation of higher operating expenses without a corresponding proportional increase in revenues, resulting in lower net revenue debt service coverage ratio going forward.”

For an upgrade, Jackson Medgar-Wiley Evers must show sustained enplanement growth and a notable increase in demand for air service, Moody said.

The airport must also gain a more diversified carrier base, an outcome aviation consultants say is unlikely for Jackson Evers and other commercial airports of similar size.

Substantial revenue growth is also a perquisite for a ratings upgrade, Moody’s said.

A downgrade could come, said Moody’s, with continued losses in passenger traffic related to sustained reductions in airline service offerings or regional demand.

Further weakening in the regional economy would also contribute to a downgrade, Moody’s said.

The Airport Authority’s liquidity levels must remain above 300 days-cash-on-hand to avoid a downgrade, according to Moody’s.

The Authority’s recently adopted a five-year strategic plan that calls for quarterly monitoring of cash on hand to ensure target levels are being achieved. This is to start in October.

Airport Authority CEO Carl Newman said in a recent interview he wants to eventually proceed with an additional $40 million or so in capital improvements at Jackson Evers despite the Fitch downgrade. This willingness to take on debt despite the Fitch downgrade differs from Newman’s predecessor as CEO, Dirk Vandeerlest, who retired in fall 2014.

Vandeerlest wanted to cut operational costs in a bid to regain the A- rating from Fitch before new borrowing to finance upgrades of the terminal and security checkpoints.

Newman plans to soon shift the Starbucks and other concessions to inside the passenger security checkpoints. The plan entails additional floor space for shops and concessions, according to Newman, who took over as airport chief in early 2015 after serving as a top executive at Houston’s George H.W. Bush International Airport and Phoenix’s Sky Harbor International Airport

More long range, he wants to revamp the concourse.

Newman said in a recent interview he will be comfortable taking on debt for the redo on the concourse even if Fitch keeps the downgrade in place. “The BBB+ “is probably as good as it gets for airports of our size,” he said.

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About Ted Carter

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