DBRS Confirms Vancouver International Airport Authority at AA (low)

DBRS has today confirmed the Senior Debentures rating of Vancouver International Airport Authority (VIAA or the Authority) at AA (low); the trend remains Stable. VIAA’s total revenue declined by 3.9% in the year, primarily as a result of significantly lower passenger volume (-9.4% year-over-year). Although DBRS had anticipated a meaningful decline in traffic in 2009 because of the weak global economic environment, the actual reduction experienced by VIAA exceeded our expectations and was generally greater than the declines displayed by other Canadian airports, due in part to certain one-off factors specific to the Authority.

VIAA responded to top-line pressure by intensifying its focus on operating expenses; however, the Authority’s operating surplus (EBITDA) still declined to $161 million in 2009 from $179 million in 2008. Total debt increased by $88 million to $691 million, or $85 per enplaned passenger, for the year ending December 31, 2009, because of softness in operating cash flow ($125 million) and fairly high capex requirements ($223 million), but was roughly in line with expectations. DBRS expects that VIAA’s traffic profile will begin to recover at a modest pace in 2010, with growth forecast in the 2% to 3% range. This, combined with a landing fee rate increase of 3%, and some recovery in concessions and rental income, should lead overall revenue to recover to approximately $370 million.

In terms of EBITDA, VIAA is expected to improve to approximately $180 million as operating and maintenance expenses increase by approximately 10% from 2009, with much of the increase related to the 2010 Winter Olympic Games hosted by Vancouver. VIAA’s debt is projected to peak at close to the current level between now and the middle of 2010 as its recent large-scale capital programs wind down.

Projected debt remains by far the lowest among DBRS-rated Canadian airport authorities and is relatively low for the current rating. The Authority is expected to generate meaningfully positive free cash flow (cash flow from operations less capital expenditures) in the $30 million to $50 million range in 2010 as cash flow from operations recovers and capex declines. The Authority’s credit risk profile is expected to remain sound, in DBRS’s view, based primarily on our opinion that the global economy will remain in slow-recovery mode through the near to medium term – VIAA estimates that it will achieve traffic growth of approximately 3% per year over this time frame. Positive free cash flow should lead to declining debt over the next two or three years, which, combined with rising EBITDA, should benefit leverage and coverage ratios. The next phase of VIAA’s capital plan, which will require meaningful debt-financing, depends on the pace and magnitude of passenger growth, and is not expected for several years. Near-to-medium term performance that is in line with expectations could result in positive implications for VIAA’s rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Airport Authorities, which can be found on our website under Methodologies.

This is a Public Finance rating.