DBRS Confirms Aéroports de Montréal at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Revenue Bonds (the Bonds) rating of Aéroports de Montréal (ADM or the Authority) at A (high). Both trends are Stable, supported by healthy operating results, manageable debt levels, well-diversified revenue sources and prudent management of operating expenses.

Passenger traffic in 2016 grew by 6.9% and reached 16.6 million passengers surpassing ADM’s expectations. Excluding Airport Improvement Fees (AIFs), aeronautical revenue increased by 5.2% and total revenue increased by 7.9%. Operating expenses (excluding municipal taxes and ground lease) increased by 5.8%, mainly attributable to the opening of the new international jetty, the harsher winter conditions and annual salary increases. As a result, the Authority recorded an operating surplus of $35.8 million. EBITDA, as calculated by DBRS, increased by 9.2% while debt service payments increased by 5.3%, collectively resulting in a slightly improved debt service coverage ratio (DSCR) of 2.3 times (x). With no new bonds issued in 2016, the total debt per enplaned passenger dropped to $218 from $233 by the end of 2016.

Results for Q1 2017 have been strong, with a new record high of 4.1 million passengers, which exceeded expectations and was up by 6.2% over Q1 2016. EBITDA for Q1 2017 totalled $59.8 million, an increase of $2.7 million or 4.7% over the corresponding period in 2016. For the full year 2017, ADM budgets 3.2% growth in passenger traffic, resulting in 5.3% growth in aeronautical revenues (excluding AIF) and 2.0% growth in non-aeronautical revenues. However, EBITDA is projected to decrease by 1.3%, mainly as a result of a 7.2% increase in operating expenses attributable to inflation, studies in support of the proposed rail link, non-passenger screening vehicles as required by new security regulation and the first full-year operation of the international jetty extension.

Infrastructure spending in 2016 was approximately $256 million, in line with the Authority’s budget. ADM intends to maintain this pace of spending over the next few years, in response to the faster-than-expected traffic growth, with the strategic plan entailing approximately $240 million to $245 million of investment annually until 2019. Total debt per enplaned passenger is expected to peak in 2019, at approximately $248, with the DSCR expected to be in the 2.2x to 2.4x range over the next four years. DBRS views both as suitable for the rating. DBRS notes that the federal government is weighing different options for a potential sale of all or part of Canada’s airports, although the sale of airports was not included in the latest federal budget. When there is greater clarity around the form of privatization and how it relates to ADM, DBRS will assess its potential impact on ADM’s ratings.

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

The principal methodology is Rating Canadian Airport Authorities, which can be found on dbrs.com under Methodologies.

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