DBRS Confirms Ottawa Macdonald-Cartier International Airport Authority at A (high)

DBRS has today confirmed the rating of the Revenue Bonds issued by the Ottawa Macdonald-Cartier International Airport Authority (the Authority) at A (high) with a Stable trend. The confirmation is predicated upon the solid growth in traffic since the last downturn, the Authority’s manageable debt load and relatively strong financial metrics which provide considerable flexibility to weather potential traffic shocks, but tempered by the weakening economic outlook arising from sovereign debt concerns, and the effects that this may have on air carriers and air travel.

Following depressed levels in 2009, traffic exhibited strong growth in 2010. The number of landed seats increased by 5.6% and passenger traffic at Ottawa International Airport (YOW) was up 5.7%, led by a 9% increase in international passengers and supported by growth in the domestic and transborder segments. Increased passenger levels combined with a 2% increase in landing fees and terminal fees drove revenues up by 7.1%. Operating expenses for 2010 increased by 7.7%, as the savings in ground rent payable to Transport Canada was not enough to offset the resumption of non-critical maintenance activities and hiring to fill vacant positions, while contractually obligated salary and benefit increases also contributed to cost increases. Nonetheless, EBITDA grew by 6.2%, leading to a slight increase in the debt service coverage ratio (DSCR) to 1.7 times.

For the first half of 2011 (H1 2011), growth in passenger traffic moderated to 1.8%, led by 5.6% and 1.5% growth in the transborder and domestic segments, respectively, but balanced against a 1.7% decline in international passengers. Over the period, revenues were up 12.9% to $51.2 million, mainly as a result of the higher airport improvement fee (AIF), which was raised from $15 to $20 per enplaned passenger, but also driven by the 2% increase in landing fees and terminal fees and the modest increase in passengers. Combined with a more modest increase in operating expenses of 4.9%, mainly attributable to higher ground rent (henceforth determined on the basis of revenues), EBITDA increased to $23.8 million, or by 23.6% as compared with H1 2011.

Expansion of the parking garage is essentially complete, slightly ahead of schedule and under budget. At the time of publication, the only confirmed capital project scheduled for 2012 is a runway repaving expected to cost $5 million, although several other projects may proceed should board approval be received. Looking to the longer term, the Master Plan (completed in 2008) contemplates other projects whose costs and timing are uncertain, but which may be accelerated depending upon traffic levels, particularly those relating to the transborder and international areas.

After several years of trending downward, debt is expected to modestly increase in the near term as the Authority makes use of its credit facilities to fund its capital needs, although drawings are not expected to materially exceed $20 million. Coupled with the increase in AIF revenues and the expected slow growth in traffic, financial metrics should not be unduly pressured and the Authority expects to finish 2011 with a DSCR of near 2.0 times and debt per enplaned passenger of $160.

Note:
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.