by James A. Bacon

As if the Metropolitan Washington Airports Authority didn’t have enough problems with the Rail-to-Dulles project, the Fitch rating service has just downgraded its bonds to AA-. Reports Reuters: “The downgrade reflects Fitch’s view that the authority will maintain a stable yet narrower level of debt service coverage cushion when compared to both its historical performance and previous forecast estimates.”

The airport still has great strengths, including the strong competitive position of Dulles and National airports in the Washington metropolitan market, well-managed financial operations, a firm airline use-and-lease agreement and traffic volume that has held up well since the recession.

However, stated Fitch, “The authority’s ongoing use of borrowings in recent years to fund a majority portion of its Capital Construction Program (CCP) has resulted in an elevated debt burden profile and will require increased reliance on airline charges to meet total airport cash flow requirements. In Fitch’s opinion, the rising debt burden places an added measure of risk to the authority’s financial profile given the downward revisions in forecasted traffic growth, especially when compared to earlier projections in prior years. In Fitch’s view, the forecasted financial metrics would no longer be consistent with ‘AA’ rating pursuant to Fitch’s criteria for airports.”

Fortunately, the authority has nearly completed its $5.1 billion 2001-2016 capital construction. Major projects left within the CCP at Reagan include runway overlay and rehabilitation and in-line baggage screening systems. At Dulles, the remaining projects include an in-line baggage screening system and taxiway Y reconstruction.

The airports are a critical economic driver for Northern Virginia, so any development that makes it more difficult to finance capital improvements comes as bad news. The reduced financial flexibility also may complicate the bond financing of Phase II of the Rail-to-Dulles project. I’ll provide details as I find out more.