DBRS Confirms Rating of Vancouver International Airport Authority at AA (low)

DBRS has today confirmed the rating on the Senior Debentures of Vancouver International Airport Authority (VIAA or the Authority) at AA (low) with a Stable trend. Despite weakened traffic growth, VIAA continues to demonstrate solid financial metrics. A significant capital plan will somewhat impair the near-term outlook for debt and financial metrics; however, the metrics are still anticipated to remain favourable compared with other DBRS-rated peers.

Enplaned passenger growth slowed to 1.3% in 2011 due to a weakening global economy, short-term disruptions caused by natural disasters, the absence of the 2010 Winter Olympic Games, and Air Canada capacity constraints. VIAA introduced its Gateway Incentive Program (GIP) in 2011, which froze aeronautical fees for five years at 2010 levels for 22 air carriers, representing 80% of passenger traffic, who signed on to the deal in exchange for maintaining or increasing services at the airport. However, capacity reductions among some non-GIP members resulted in a minor decline in landing and terminal fee revenue. Overall expenses decreased year-over-year, with savings coming from a reduction in operating costs following the 2010 Olympic Games, while GIP members maintained 2010 capacity, driving EBITDA slightly higher.

VIAA anticipates a rise in 2012 EBITDA led primarily by a May 1, 2012, $5 increase in the airport improvement fee (AIF) to $20, bringing the rate in line with that of other major Canadian airports. Approximately 67% of enplaned passengers are subject to the full $20 AIF charge (connecting passengers are typically not charged the fee and passenger travel within British Columbia and to the Yukon is subject to a $5 charge), leading to approximately $20 million more in revenues in 2012. Aeronautical fees, however, are not expected to demonstrate any significant year-over-year improvement until after the termination of the GIP program at the end of 2015.

Total debt decreased by 8.5% to $555.6 million in 2011, or $65 per enplaned passenger, ahead of expectations, owing to the Authority’s continued resolve to pay down its operating line and slower-than-anticipated capital spending in the year. The DBRS-adjusted interest coverage ratio reached a four-year high of 6.3 times in 2011, and has consistently been at a level that exceeds its DBRS-rated peers. The Authority is in the process of ramping up its capital program, calling for $830 million in spending between 2011 and 2015. As a result, debt is expected to rise annually, peaking at $70 per enplaned passenger by 2014, a level that would continue to be appropriate for the rating. However, plans are underway to become an equity partner for a $180 million luxury retail development project on airport property. DBRS will follow the progress and the terms of this transaction, and any significant guarantees will be considered in the assessment of the credit profile.

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.