Morningstar DBRS Confirms Aéroports de Montréal's Issuer Rating and Revenue Bonds Credit Rating at A (high) With Stable Trends

Morningstar DBRS confirmed both the Issuer Rating of Aéroports de Montréal (ADM or the Authority) and the credit rating on ADM's Revenue Bonds at A (high) with Stable trends. The credit rating confirmations are underpinned by ADM's improved financial performance in 2024 against the backdrop of continued growth in total passenger traffic. However, Morningstar DBRS estimates ADM's credit metrics, such as debt service coverage ratio (DSCR) and debt-per-enplaned passenger ratio in 2025-29 may weaken year over year (YOY) to around 1.5 times (x) and more than $370, respectively, by 2029. The Authority is currently expected to spend an average of nearly $900 million annually in capital investments (including maintenance capital programs). Therefore, Morningstar DBRS expects ADM will need to increase financial leverage in the future. In addition, Morningstar DBRS anticipates the EBITDA margin may not return to the 50% level seen in 2019 because of higher operating expenses associated with the planning and implementation of the major capital programs that will happen in 2025-29. Despite the projected deterioration of ADM's credit metrics in 2025-29, Morningstar DBRS believes they remain supportive of the current credit ratings. Morningstar DBRS further notes that the Authority will be establishing a 2026 budget in Q4 2025. Therefore, Morningstar DBRS' current financial projection for ADM is subject to the final 2026 budget and may change.

KEY CREDIT RATING CONSIDERATIONS
ADM's passenger traffic in 2024 modestly exceeded Morningstar DBRS' expectations and total passenger traffic reached 22.4 million (a traffic record for the airport), an increase of 5.8% compared with 2023, and 10.3% compared with 2019. The transborder segment showed the strongest growth with an increase of 9.6% while the international segment grew by 7.8%. The domestic segment remains the weakest of all the segments, as it grew by only 0.1% compared with 2023 and remained 8.2% below the 2019 level.

As a result of a growing passenger base, total revenues increased to $917.2 million in 2024, an increase of 8.2% over 2023 revenues. EBITDA increased modestly to $439.1 million in 2024 from $437.9 million in 2023 and the EBITDA margin declined to 47.9% in 2024 from 51.6% in 2023. The lower EBITDA margin was a result of a material increase in operating expenses (21.4% increase over 2023) because of higher operating costs for passenger services and airport site flow as well as higher fees for the design of medium- and long-term development plans and higher IT costs.

Despite the lower EBITDA margin, the DSCR improved to 3.7x in 2024 from 3.6x in 2023 because total debt remains relatively stable (the last senior bonds issuance was in 2021). The debt per enplaned passenger ratio lowered to $258 in 2024 from $270 in 2023.

H1 2025 presented extraordinary challenges as the U.S. trade war escalated to an unprecedented level in early April. The historic shift in U.S. trade policy in H1 2025 has negatively affected air travel between Canada and the U.S., and the transborder segment is an important market for the major Canadian airports. In H1 2025, passenger traffic in the transborder segment at ADM declined by 6.8% compared with the same period in 2024. While domestic and international passenger traffic grew in H1 2025, the increase was not sufficient to fully offset the decline in transborder passenger traffic. As a result, total passenger traffic in H1 2025 declined modestly by 0.4% compared with H1 2024.

Morningstar DBRS further notes that the decline in transborder passenger traffic began in January 2025, and the pace of decline accelerated in April 2025 when passenger traffic in that month decreased by 10.9% compared with April 2024. While the pace of the decline in the transborder passenger traffic decelerated in June 2025 (down 3.3% from the June 2024 level), the lingering effects of the unresolved trade war between Canada and the U.S. may persist in H2 2025.

The above factors have translated to a weaker total revenue growth of 2.2% in H1 2025 compared with the growth of 13.5% in H1 2024. EBITDA declined to $196.0 million in H1 2025 from $214.7 million in H1 2024. The lower EBITDA in H1 2025 is attributable to an increase in operating expenses of 17.2% in H1 2025 compared with H1 2024. As mentioned earlier, ADM will incur higher operating expenses in 2025-29 due to the preparation and implementation of major capital projects. These costs are not correlated with aeronautical activities and, therefore, lower passenger traffic in H1 2025 did not translate to lower operating expenses associated with the major capital projects.

At this time, based on the passenger traffic performance in H1 2025, Morningstar DBRS cautiously assumes that by YE2025, total passenger traffic may reach 22.2 million. This is a modest decrease of about 0.7% compared with 2024. Morningstar DBRS further projects that the annual average passenger traffic growth rate will be around 2.3% in 2025-29. As a result, under Morningstar DBRS' revised base-case scenario, ADM may not reach 25.0 million passengers by 2029 (projected to exceed 25.0 million by 2028 in last year's forecast).

With lower passenger traffic forecast for 2025-29 coupled with lower EBITDA growth projected (because of elevated operating expenses in the next several years) and higher leverage (to fund major capital projects), Morningstar DBRS is projecting the DSCR and debt-per-enplaned passenger ratio in 2025-29 to weaken YOY to around 1.5x and more than $370, respectively, by 2029.

ADM entered into a $1.0 billion loan agreement with Canada Infrastructure Bank (the CIB Loan) in July 2025 to support up to 50% of the capital investments related to the first phase of the Flight Plan. Morningstar DBRS notes that the CIB Loan will not mature until July 15, 2055 (the Maturity Date) and the loan is subordinated in rights and in payments to the senior bonds. As a result, if there is an event of default (EOD) under the CIB Loan that triggers an EOD under the Master Trust Indenture (MTI), CIB cannot take any enforcement actions, including accelerating the repayment of the CIB Loan, until the earlier of the Maturity Date or the date on which the senior bondholders have been fully repaid. At present, there are no outstanding senior bonds beyond 2051. Nevertheless, Morningstar DBRS believes the presence of a cross-default provision under the MTI presents a risk that any nonpayment on the CIB loan will trigger an EOD under the MTI. However, Morningstar DBRS believes the risk is very remote for three reasons:
-- Unlike private financial institutions, CIB is a Crown corporation mandated to invest in infrastructure that benefits Canadians. Given that airports in the National Airports System (e.g., Montréal Trudeau International Airport) are owned by Transport Canada and leased to Canadian airport authorities (not-for-profit, non-share capital corporations) to manage and develop the Canadian airports, Morningstar DBRS believes there is a clear alignment at the ownership, management, and CIB level in supporting public infrastructure investment. Ultimately, these entities serve the public interest and Morningstar DBRS believes it is less likely there will be any material disputes.

-- ADM has the ability and rights to defer interest payment under the CIB Loan under certain circumstances. There is no limit on the number of interest deferrals that may occur and such interest deferral will be added to the principal amount and will not constitute an EOD under the CIB Loan. Morningstar DBRS believes this interest deferral provision alleviates any financial pressure on ADM during a period of unfavourable market conditions. Thus, this provision strengthens Morningstar DBRS' view that the risk of nonpayment under the CIB Loan is very remote.

-- While Morningstar DBRS anticipates ADM will likely need to issue additional senior bonds in the future (i.e., anticipates the Authority will have senior bonds outstanding beyond the Maturity Date) to fund its sizeable capital programs over the next 10 years, the standstill provision under the CIB Loan protects the current senior bondholders until the Maturity Date. Therefore, Morningstar DBRS views this more of a refinancing risk for ADM. However, the refinancing period is quite remote (30 years from now) and the ground lease with the Government of Canada does not end until July 31, 2072. Therefore, Morningstar DBRS currently views the refinancing risk on the CIB Loan to be immaterial.

Based on the above reasons, Morningstar DBRS does not include any interest payment and loan outstanding amount under the CIB Loan in the calculation of the credit metrics in the financial projection (2025-29).

CREDIT RATING DRIVERS
A positive credit rating action is unlikely unless ADM unexpectedly and materially exceeds Morningstar DBRS' base-case financial projection. Morningstar DBRS may take a negative credit rating action if the total passenger traffic materially underperforms the base-case projection. In addition, if EBITDA growth does not materialize as expected and the financial leverage increases beyond Morningstar DBRS' expectations, a negative credit rating action could be triggered.

FINANCIAL OUTLOOK
Against the backdrop of a weaker financial performance in H1 2025 and the ongoing economic uncertainty, ADM indicated that EBITDA may decline by YE2025. Under Morningstar DBRS' revised base-case scenario, the DSCR and debt-per-enplaned passenger ratio in 2025-29 may weaken YOY to around 1.5x and more than $370, respectively, by 2029.

CREDIT RATING RATIONALE
-- Comprehensive Business Risk Assessment (CBRA): AH
The CBRA of AH reflects ADM's credit rating strengths and challenges. The Authority's credit rating strength is underpinned by its (1) legislated ability to adjust fees to recover costs; (2) virtual monopoly in the Montréal region; (3) high origination and destination passenger mix and air traffic diversification; (4) revenue diversification from commercial operations; and (5) large economic region. The challenges are its (1) sensitivity to various global disruptive events and economic cycles; (2) significant capital investment over the next 10 years that will require additional borrowings; (3) high exposure to a single air carrier; (4) relatively heavy municipal tax burden; and (5) close proximity to Ottawa, creating competition for passenger traffic.

-- Comprehensive Financial Risk Assessment (CFRA): A
The CFRA of A is underpinned by Morningstar DBRS' revised base-case scenario in which it projects EBITDA to grow at an annual average of 2.3% in 2025-29. In addition, Morningstar DBRS expects the Authority to increase its borrowings in 2025-29 to fund major capital investments that are projected to average about $900 million annually in 2025-29. As a result of higher leverage coupled with lower EBITDA growth, Morningstar DBRS projects the DSCR and debt-per-enplaned passenger in 2025-29 to weaken YOY to around 1.5x and more than $370, respectively, by 2029.

-- Intrinsic Assessment (IA): AH
The IA of AH is at the midpoint of the Intrinsic Assessment Range and is based on the CBRA and CFRA, also taking into consideration current credit rating trend and peer comparisons, among other factors.

-- Additional Considerations: None
ADM's credit ratings include no further negative or positive adjustments because of additional considerations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/460699.

Morningstar DBRS notes that this Press Release was updated on August 18, 2025, to include the IA Framework disclosure and link.

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

Morningstar DBRS applied the following principal methodology: Methodology for Rating Airports (May 22, 2025) https://dbrs.morningstar.com/research/454581.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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