Fitch Ratings has affirmed Boise City, ID's $21.3 million senior lien airport revenue bonds at 'A+' and its $12 million subordinate lien airport revenue bonds at 'A'. The Rating Outlook is Stable. KEY RATING DRIVERS The ratings reflect Boise Airport's (BOI) monopolistic air service position within the state of Idaho which serves a small, regional-focused but predominantly origin & destination (O&D) traffic base. BOI maintains revenue diversification through combination of airline payments supported by the use agreement as well as various non-airline revenue sources, limiting the volatility on potentially volume-sensitive cash flows. With zero net leverage on aggregate debt and robust total coverage of 2.60x in fiscal year (FY) 2016, the airport's stable financial performance, supported by ample liquidity, is expected to be maintained as enplanements continue to stabilize. The size of the airport traffic base and the potential for some volatility in traffic performance constrain the rating to the 'A' category. Small Strategic O&D Airport - Revenue Risk (Volume): Midrange BOI's relatively small operating profile of approximately 1.7 million annual enplanements is offset by its unique geographic position, lack of material competition, and solid carrier diversity. While traffic had measurably fallen by more than 20% starting from the prior recession, strong recovery growth over the past few years has resulted in enplanements reaching 95% of their peak FY 2007 level. The airport's small scale of operations is also mitigated by a largely O&D traffic profile of approximately 95% of enplanements and no carrier representing more than 30% of passenger traffic. Strong Cost Structure - Revenue Risk (Price): Stronger BOI's cost per enplaned passenger (CPE) continues to remain under $5, which is low compared to peers, and is expected to remain below $4.83 in the rating case. The airport's cost-center residual airline use and lease agreement (AUL) extends through FY 2020 and enables the airport to pass most costs to the signatory air carriers but also allows non-airline-related revenues to provide for higher levels of airport net revenues. Manageable Capital Program - Infrastructure Development and Renewal: Stronger The airport's six-year capital improvement program (CIP) through FY 2022 totals $146.3 million and may require $15.2 million in additional debt in FY 2019 for the construction of a cargo facility for an international cargo carrier. The program is funded by a mixture of excess cash, entitlement grants, additional debt, passenger facility charges (PFCs), and customer facility charges (CFCs). Other projects include taxiway improvements, masterplan updates, pavement rehabilitation and rental car facility improvements. Conservative Debt Profile - Debt Structure: Stronger (Sr), Midrange (Sub) The airport's senior debt has a flat annual debt service of $5.3 million through FY 2020, when series 2011 bonds mature and drops to an average of $827,000 per annum thereafter through final maturity in FY 2032. Aggregate debt service is about $6.1 million annually through 2020, before dropping significantly to approximately $1.6 million thereafter. All debt is fixed rate, and all other structural features are satisfactory. Financial Profile Debt service coverage (PFCs as revenues) continued to improve in FY 2016 with total coverage of 2.60x and is expected to average 3.32x in the rating case. There is enough cash on hand to offset most debt outstanding resulting in zero total leverage, which remains negative through the forecast period even if an additional borrowing was needed to fund the capital program. The airport's balance sheet liquidity is strong, with 668 DCOH that provide additional financial cushion. PEER GROUP Comparable peer airports include similarly rated El Paso ('A'; Outlook Stable) and Albuquerque ('A+' senior/'A' subordinate; Outlook Stable), which both serve local regional populations with similar enplanement sizes. Boise has higher liquidity at 668 DCOH than El Paso (270 DCOH) and lower leverage at 0.02x. Both El Paso and Albuquerque are subject to volatility in near-term traffic due to changes in their respective local economies.   RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Negative Rating Action: --Sharp reductions or elevated volatility in service or capacity by individual airlines; --While not expected in the near term, additional debt issuances that would meaningfully dilute coverage and increase leverage towards the 4x level. Future Developments That May, Individually or Collectively, Lead to Positive Rating Action: The airport's size and traffic profile, coupled with inherent vulnerabilities to airline decisions, restricts the likelihood of a higher rating at this time. CREDIT UPDATE Performance Update Recent enplanement trends demonstrate a growing local economy and stabilizing passenger traffic base at BOI following several years of traffic declines, as enplanements are up 7.8% through the first 11 months of FY 2017. In FY 2017, Southwest Airlines joined Alaska Airlines in providing service to San Diego in June 2017, and American Airlines joined United Airlines in providing service to Chicago O'Hare in July 2017. New destinations and increased service on existing routes create additional options for travellers. With the stabilizing traffic base, FY 2017 financial results are expected to be stable as well. Through 11 months of 2017, YTD total operating revenues are up 4.9%, reflecting the increase in passenger traffic. Airline rents are down 6.9% from YTD 2016 due to airline landing fees and terminal rates being reduced approximately 10%. However, this revenue decrease is offset by robust growth in parking, car rentals, concession revenues, and rental income. Operating expenses through YTD 2017 are up 12.8% from YTD 2016 primarily due to major non-recurring O&M expenses, higher snow removal costs and also increased economy shuttle lot operating costs as a result of having to accommodate higher parking demand trends. The airport maintains high system coverage at 2.60x (all-in basis, PFCs as revenues) alongside zero leverage and CPE at $4.45. All-in DSCR is higher than expected as a result of increased revenues related to the robust traffic growth in FY 2016. Fitch expects that these metrics will remain similar in 2017 given the strong YTD traffic growth. Fitch Cases Fitch's base case scenario assumes a 7% growth rate in enplanements for FY 2017 to reflect YTD performance (11 months) and average traffic growth of 1.5% per annum following 2017 to reflect the airport's volatile traffic history. The base case also assumes non-airline revenue growth tracks enplanements and 2.5% average annual airline revenue growth in all years except in 2021, when there a 9% dip to account for the payoff of terminal debt. Operating expenses are projected to grow annually at 11% in FY 2017 to reflect YTD performance and 3% per annum thereafter. Coverage levels on an all-in basis are expected to remain robust despite the tempered traffic average, averaging 3.86x over the forecast period. Average CPE is expected to rise to $4.39 by 2020 before falling below $4.00 in 2021. Fitch's rating case scenario assumes a near-term enplanement stress of 10% in 2019 followed by 1.5% recovery in subsequent years. Similar to the base case, non-airline revenues generally track enplanements except in 2019 when the rating case assumes only a 5% decrease to account for BOI's non-airline revenue diversity. Airline revenues grow at 2.5% per annum in most years except in 2018 when there is a stress to enplanements and in 2019 when terminal debt is paid off. The rating case also assumes higher expense growth of 4% per annum. Coverage levels on an all-in basis remain robust, averaging 3.32x with a minimum of 2.24x in 2020. Leverage still remains near 0x even when including the new debt issuance of $15.2 million in FY 2019, while CPE remains competitive, averaging $4.55 through the forecast period. Asset Description BOI is a small hub airport, close to downtown Boise, the state capital and Idaho's largest MSA. The City of Boise has owned and operated BOI since 1939 as a self-sustaining enterprise city fund. Facilities include 5,000 acres, two commercial service runways, terminal (23 gates and two concourses), 2,986 parking spaces, and other properties leased to third parties. BOI is the only airport within 400 miles that provides scheduled national service.