OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on the State of Alaska's Alaska International Airport System's (AIAS) approximately $440.885 million of revenue bonds. The Rating Outlook for all bonds is Stable.

KEY RATING DRIVERS

The rating reflects AIAS' well anchored cargo position and air service monopoly supported by a modestly sized traffic base, conservative debt structure, and a stable financial profile. Cargo activities continue to be volatile in nature which is somewhat mitigated by the airport system's stable passenger enplanement base of over 3 million. AIAS' financial profile is sound with modest operating revenue growth, and controlled operating expenses. Its liquidity position remains strong with over 500 days cash on hand (DCOH) and leverage (net debt to cash flow available for debt service, CFADS) is evolving downward at 5.75x.

ESSENTIAL MARKET POSITION: REVENUE RISK - VOLUME: MIDRANGE

Air travel is essential in Alaska due to a lack of alternatives, which provides a stable origination and destination (O&D) base of 3.2 million. Two major airports, Anchorage (ANC) and Fairbanks (FAI), are strategically located for air cargo along the great circle route, and cargo provides over half of total operating revenues but remains vulnerable to global economic conditions as well as changes in trade policy and fuel costs.

FAVORABLE RATE SETTING APPROACH: REVENUE RISK - PRICE: STRONGER

Carriers operate under a full residual operating agreement that allows AIAS to set and adjust rates to ensure sufficient revenues for operating and maintenance, reserves, and the rate covenant. The operating agreement was renewed in fiscal 2014 for an additional 10 years under similar strong cost recovery terms. Cost per enplanement (CPE) was $10.73 in fiscal 2015 and, while slightly above peers, is expected hold stable.

LARGE CAPITAL PROGRAM: INFRASTRUCTURE DEVELOPMENT & RENEWAL: STRONGER

The airport system has a large $420 million capital program through 2023 funded with grants and internal reserves. No new near-term debt is anticipated to complete the CIP. The largest project is resurfacing the ANC airfield, which is expected to last several years. Relatively new terminal facilities are in good condition.

CONSERVATIVE DEBT STRUCTURE, DEBT STRUCTURE: STRONGER

The system has a reasonable amount of debt outstanding given its size with approximately 90% of debt fixed rate, along with relatively standard covenants and reserve requirements. AIAS has in the past accelerated its leverage reduction actions by using available cash to pay down debt and lower annual debt service.

SOUND FINANCIAL METRICS

AIAS' healthy balance sheet helps manage financial metrics of 5.75x leverage, $153 debt per enplanement, and 535 DCOH. Fiscal 2015 debt service coverage improved to 1.49x, with PFCs included as revenues, reflecting higher airline receipts from activity growth.

PEERS:

Louisville ('A+'/Outlook Stable) and Memphis ('A'/Outlook Stable) are Fitch-rated peers dual dependency on cargo operations and passenger traffic. AIAS has leverage similar to Memphis, however, with more liquidity. Louisville boasts lower leverage and lower CPE than AIAS as well a more diversified passenger market share.