The ability of airports to fund capital projects in the near term faces a stiff test due to pay-go funding liquidity issues, Fitch Ratings concludes in a new special report, “What Investors Want to Know: U.S. Transportation and the Coronavirus Crisis.”
“Federal monies that airports can use for any lawful purpose and existing funds held in unrestricted reserves and construction accounts will soften the blow somewhat,’ said Seth Lehman, Fitch Ratings senior director. “That said, obtaining broad airline support will be more difficult until the aviation environment recovers.”
The report says that given current uncertainties over the duration and severity of enplanement losses due to the impact of the COVID-19 pandemic. Airports are expected to make capital program modifications by either deferring projects that are intended for expansionary purposes or scaling backless essential projects altogether to offset cash flow weakness.
“Capital projects underway for terminal redevelopment or new facilities to serve growth, such as those in Los Angeles (Midfield Concourse), New York LaGuardia (Central Terminal) and Kansas City, are likely to continue given the funding was covered from previous bond issues,” the report added.
The report also noted that the ratings agency updated its ratings and downside sensitivity to reflect travel projections from air carriers that signaled significant further declines in enplanements than originally anticipated and a longer nature of the recovery.
“Financial feasibility for some projects may warrant a closer review as incoming receipts from passenger facility charges are diminished as enplaned passenger levels remain depressed,” Fitch Ratings said. “In many cases, airlines pre-approve portions of airport capital programs under use and lease agreement majority-in-interest provisions. Until the aviation environment recovers, obtaining broad airline support will be more difficult.”
