AMR Woes May Hit Dallas, Miami, Chicago Airports

December 3, 2011

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The finances of three major US airports could weaken from the bankruptcy of American Airlines and its parent company, Fitch Ratings said on Friday as it revised rating outlooks on some of their debt.

An estimated USD$4 billion in joint revenue improvement bonds for Dallas-Fort Worth, USD$6 billion of aviation revenue bonds sold on behalf of Miami Airport and USD$6.5 billion of airport revenues bonds issued on behalf of Chicago O'Hare Airport are particularly vulnerable from the Chapter 11 filings made by AMR and its American Airlines subsidiary, Fitch said.

Fitch, one of the three major Wall Street credit rating agencies, affirmed the ratings on the debt. The DFW bonds are rated A-plus, Miami at A, and Chicago O'Hare at AA-plus.

Special facility revenue bonds are solely the responsibility of the airline and have lost popularity in recent years after United Airlines defaulted on USD$1.1 billion of the debt when if filed for bankruptcy protection in 2002.

Fitch said "credit concerns do exist for individual airports, particularly facilities where American operates major connecting hubs. The airline companies filed for bankruptcy on Tuesday, an act that "poses only minor immediate risks to most general airport revenue bonds," Fitch said.

"As bankruptcy courts generally allow an airline to continue making payments to the airports it serves, Fitch expects airports will continue to receive payments from American on a timely basis for the near term," Fitch said.

"However, an airline bankruptcy filing may allow for rejection of use and lease agreements at individual airports or result in changes through negotiations."

As the bankruptcy process unfolds, hubs that rely on American to generate high levels of transfer traffic are at risk, Fitch said, as are smaller cities where American provides commuter and regional services it could cut to save money.

American, which employs about 88,000, sought bankruptcy protection in order to cut labour costs in the face of high fuel prices and dampened demand.

In its bankruptcy filing, AMR reported assets of USD$24.72 billion and liabilities of USD$29.55 billion. The company also said it has USD$4.1 billion in cash holdings.

American and its regional affiliate American Eagle accounted for approximately 85 percent of the Dallas Fort-Worth airport's 28 million total enplanements in the fiscal year ended September 20. If American's passenger traffic declines 10 percent, capital projects for two of its terminals may have to be deferred, it said.

American has a smaller presence in Miami, accounting for 68 percent of the 18.7 million total enplanements there in fiscal 2011, but the debt service costs on financing for a USD$5 billion capital programme have risen 30 percent, Fitch said.

O'Hare in Chicago is also finishing a high-price capital programme, where costs could exceed USD$3 billion, Fitch said, and debt-service costs are expected to rise 50 percent.

Earlier this week, Moody's Investors Service said it would look closely at any additional debt O'Hare takes out.