Fitch Ratings has affirmed the 'A' rating on approximately $72.6 million outstanding airport revenue bonds issued by Capital Region Airport Commission (VA) on behalf of the Richmond International Airport (RIC). The Rating Outlook is Stable.

Key Rating Drivers

The rating reflects the airport's small, predominantly origination and destination (O&D) market within a growing metropolitan capital area. The airport's financial profile remains strong but is significantly supported by non-aviation revenues. Balance sheet strength is supported by moderate debt levels and rising liquidity that provides the ability to sustain some weakness in operational performance. Additionally, the airport's low cost per enplanement (CPE) and minimal projected leverage serve as credit strengths within the rating category.

Essential Service Area with Small Enplanement Base - Revenue Risk (Volume): Midrange

RIC serves a relatively small but primarily O&D traffic base of over 2.1 million enplanements. Richmond, VA (AA+/Stable) has a strong underlying economic base supported by government and education sectors. The airport's traffic is balanced favorably with business passengers and a diverse carrier mix. There are two airports in the Washington D.C. region within 90 miles of RIC, but O&D competition is limited.

Airline Agreement Provides Stability - Revenue Risk (Price): Midrange

RIC operates with a competitive and generally stable cost structure under its compensatory rate-setting airport use and lease agreement. Non-airline revenue accounts for approximately 80% of pledged revenue, providing a relatively low CPE at around $5. While Fitch believes a diverse revenue stream contributes to low airline costs, a reliance on non-airline revenue could expose the airport to risk through enplanement volatility or economic cyclicality.

Manageable Capital Plan - Infrastructure Development and Renewal: Stronger

The capital improvement plan (CIP) for 2019-2024 is robust at $187.5 million and may require issuing $41.8 million in additional parity debt in fiscal 2021 to fund a demand-driven parking garage expansion if high occupancy levels are reached. Current major capital projects include the expansion of Concourse A. The remaining airside projects will be predominantly cash-funded and grant-funded.

Conservative Debt Structure - Debt Structure: Stronger

The airport's debt is entirely fixed-rate with a flat to declining amortization profile. Total debt service requirements decreases from approximately $8.8 million in fiscal 2019 to $3.0 million in fiscal 2027 and remains flat through maturity, assuming no additional borrowing. The debt structure includes standard covenants for rates and new borrowings, and is further supported by a fully cash-funded debt service reserve fund of approximately $6 million.

Financial Profile

Debt service coverage remained robust at 2.3x in fiscal 2018. Leverage remains low at 1.7x on a net debt/cash flow available for debt service basis for fiscal 2018. Additionally, the airport has over 1,000 days cash on hand (DCOH) when including the equipment and capital outlay account and approximately 500 DCOH when excluding it, providing additional financial cushion.

Peer Group

RIC's peer group consists of similarly sized enplanement base airports such as Albany, NY (A-/Stable) and Memphis, TN (A/Stable). RIC benefits from better carrier diversification than peers as well as lower CPE levels. RIC's leverage and liquidity levels are more robust than those of Albany and Memphis, and the airport also benefits from stable to positive enplanement growth in recent years.

Rating Sensitivities

Developments That May, Individually or Collectively, Lead to Negative Rating Action:

  • Elevated traffic or economic volatility leading to lower than forecast non-aviation revenue or debt service coverage;
  • To the extent the commission's borrowing requirements for the capital program lead to measurable increases in debt above that currently planned and leverage above 4.0x.

Developments That May, Individually or Collectively, Lead to Positive Rating Action:

  • Given the current operating profile, absent a measurable increase in the airport's enplanement base along with improvement to coverage and leverage metrics, upward migration is unlikely at this time.

Credit Update

Performance Update

Enplanements increased 11.5% to over 2.1 million in fiscal 2019 due to widespread demand in the airport's primary service area, further building upon the previous 6.6% growth in fiscal 2018 and 2.1% growth in fiscal 2017. Increased airline competition in conjunction with the steadily improving local economy continued to stimulate RIC's passenger traffic given that most of its traffic is generated by the region's population and economy. Increased seat supply and added frequencies for some destinations also contributed to the increase in passenger activity. Traffic growth at the airport has been robust in recent years, resulting in a five-year CAGR of 4.2%.

Total operating revenue increased 5.5% to $47.8 million in fiscal 2018, driven by increases in enplanement volumes (up 6.6%), parking (up 2.6%) and concession revenue (up 6%). The airport is exposed to discretionary spending risk, as parking and concession revenues contribute 44% and 23% of pledged operating revenue, respectively. The airport's operating costs increased 8.5% in fiscal 2018, driven by increases in personnel, utilities, and parking expenses.

Management has continued to monitor parking growth at the airport before moving forward with adding two or three more floors to the North Public Parking Garage. The expansion would stimulate further revenue growth, which already contributes 44% of total operating revenues. However, given that the parking garage expansion is a demand-driven project, the airport will only proceed if high occupancy levels are reached. The current CIP will be funded through a mix of federal (9%) and state (6%) grants, passenger facility charges (26%), customer facility charges (6%), additional debt (20%) and funds from the commission (32%).

Fitch Cases

Fitch's base case scenario assumes a 3.1% enplanement and 4.0% expense CAGR through fiscal 2024. Revenue growth from parking and concessions track enplanement growth, while revenues from landing fees remain flat at 2.0% per annum and revenues from rentals and apron fees remain flat at 1.0% per annum. Both the base and rating case scenarios assume the airport proceeds with the parking garage expansion and consider the airport's anticipated borrowing of $41.8 million in fiscal 2021, reflected in increased debt service payments commencing fiscal 2021, and increased debt outstanding. Under this scenario, DSCR is expected to average 2.5x throughout the forecast period. CPE levels remain in the $5.51-$5.55 range and leverage reaches a maximum of 2.1x in fiscal 2021 before falling to 1.4x by fiscal 2024.

Fitch's rating case scenario assumes enplanement stress of 10% in fiscal 2020 with moderate recovery thereafter. Fitch also assumes a 3.8% expense CAGR through the forecast period, with no expense growth during the year of the enplanement stress. DSCR is expected to average 2.3x through the forecast period and CPE levels rising to $6.23 in fiscal 2020. Leverage rises to 2.4x in fiscal 2021 when including additional borrowing, but still remains favorable relative to Fitch criteria and peers at below 4.0x. Though leverage is elevated in fiscal 2021, Fitch does not expect the airport to proceed with the borrowing following a significant drop in enplanements given that the parking garage expansion is demand-driven.

Security

The bonds are secured by the net revenue of RIC's operations and certain funds per the bond resolution.