Credit rating agency Fitch said Thursday that it might downgrade the Burbank-Glendale-Pasadena Airport Authority after it gets a clearer picture of the airfield’s financial standing later this year.
Fitch has already put the airport authority on “watch negative” status, citing weakened parking revenues and plans to build a multimillion-dollar transit center for Bob Hope Airport.
Construction bids for the transit center, which will bring rental car, bus and rail services under one umbrella, are expected to be opened in mid-March, said airport spokesman Victor Gill.
At that point, Fitch should have a clearer picture of how it will deal with the airport authority’s current AA- rating, said Seth Lehman, senior director and head of U.S. airport ratings for Fitch.
The airport has been battling declining passenger numbers and revenues the past four years and suffered another blow when American Airlines pulled out of Burbank earlier this month.
Fitch warned in November that affirmation of the authority’s rating was “unlikely” unless the airport’s financial situation rebounded or there was a change in scope or borrowing elements for the planned transit center.
When requesting bids, the airport authority gave prospective contractors the option to include plans to build the center with concrete in addition to plans for construction with more expensive materials. Airport officials hope that using concrete will bring down costs and reduce the amount of money the authority would have to borrow.
The authority has a debt balance of about $56 million from a $67-million bond taken out in 2005, the bulk of which was used to help buy about 27 acres that is now the valet parking lot and economy parking Lot D.
“For an airport of its size, that’s a very low level of debt,” Lehman said, adding that 70% of airports in the United States have a single A rating.
However, the authority faces several financial challenges, including declining parking revenues, which make up about 40% of the airport’s operating revenues, and the fact that Southwest provides about 66% of the airport’s air service, so it is vulnerable if the airline reduces flights into or out of Burbank.
Fitch outlined four changes that could trigger a downgrade in the authority’s rating, including the inability to build the transit center on time and within cost projections as well as a continued drop in parking revenues without making budget adjustments.
Weighing in the authority’s favor is the $140 million it has in unrestricted funds as of the end of fiscal year 2011, Lehman said.
Fitch’s report points out that additional bonds for the transit center are expected to be paid with a combination of fees charged to rental car customers and lease payments from rental companies.
Even though that revenue stream can be volatile, “financial metrics will likely remain manageable,” according to the report.
While acknowledging that the authority’s credit rating could still take a hit, Lehman said the airport’s financial position “will remain very strong.”