Correct: Fitch Rates $800MM Houston Airport System - Texas - Rev Bonds 'A+'.

Business Editors

CHICAGO--(BUSINESS WIRE)--July 19, 2002

(In a press release issued earlier this week, the par amount for the outstanding subordinate lien revenue bonds was incorrect. The amended press release follows).

Fitch Ratings-Chicago-July 16, 2002: Fitch Ratings assigns an 'A+' rating to Houston, TX's $800,000,000 airport system subordinate lien revenue bonds scheduled for negotiated sale on or about July 22, 2002 through a syndicate led by JPMorgan and Bear, Stearns & Co., Inc. The issue consists of five series of bonds: series 2002A, $325,000,000 fixed-rate bonds subject to the alternative minimum tax (AMT); series 2002B, $225,000,000 non-AMT fixed-rate bonds; and $100,000,000 series 2002C, $75,000,000 series 2002D-1, and $75,000,000 series 2002D-2, all of which are subject to the AMT and will be issued as auction rate securities. The city plans to insure the bonds through a monoline insurance company whose insurer financial strength is rated 'AAA' by Fitch Ratings. The bonds are secured by the net revenues generated from the operations of the airport system. Proceeds will finance portions of the city's airport capital program, including terminal enhancements and construction of a fifth parallel runway, as well as refinance the system's outstanding commercial paper. Fitch Ratings also affirms its 'A+' rating on the system's approximately $1.5 billion in outstanding subordinate lien revenue bonds.

The 'A+' rating reflects the broad economic base of the primary service area as well as the system's sound financial operations, strong historical demand for air carrier service, and modest future debt needs. Credit concerns include the dominate positions held by Continental(Continental) Airlines and Southwest (Southwest) Airlines at George Bush Intercontinental Airport (Intercontinental) and William P. Hobby (Hobby) Airport, respectively, as well as the increasing costs associated with the city's $2.96 billion airport capital program.

The city of Houston owns the three airports that make up the airport system - Intercontinental, Hobby and Ellington Field - which are operated by the city's department of aviation. Intercontinental, located 22 miles north of downtown, serves as the primary commercial airport for the metropolitan area. Houston-based Continental (senior unsecured debt rated 'B-' by Fitch Ratings) operates its largest hub at the airport and, along with its Continental Express regional affiliate, accounted for 82.7% of enplanements at Intercontinental during fiscal 2001. Reflecting the strength of the economy and Continental's increased operations at the airport, enplanements at Intercontinental increased 7.4% annually since 1992, to 17.9 million passengers in fiscal 2001, when the airport ranked as the nation's ninth busiest. Based on the continued strength of the regional economy and Continental Express' plans for expansion, the airport consultant projects enplanements at Intercontinental will increase 2.8% annually through 2008.

Hobby, located seven miles southeast of downtown, serves as the market's secondary commercial airport and features mostly low-cost carriers providing point-to-point domestic service. Southwest(senior unsecured debt rated 'A' by Fitch Ratings), which considers Houston as one of its 'focus cities', accounted for 84.6% of enplanements at the airport during fiscal 2001. Reflecting the capacity constraints of Hobby's older terminal facilities, enplanements at the airport increased 1.3% annually since 1992, to 4.5 million passengers in fiscal 2001 when the airport ranked as the nation's 43rd busiest facility. Based on the completion of the current terminal improvements underway, as well as Southwest's plans for gradual expansion of service at the airport, the city's consultant forecasts enplanements at Hobby will increase 1.5% annually through 2008. Ellington Field, located 15 miles southeast of downtown, serves general aviation.

The system's airport use and lease agreements utilize a compensatory methodology for setting fees and charges in the terminals and a residual methodology for the airfield facilities. The stable revenues generated under these agreements result in consistently sound financial operations, with debt service coverage equaling 2.25 times (x) in fiscal 2001. The system generated 50% of its revenues from non-airline sources during 2001, resulting in a low cost per enplanement passed along to the airlines of $4.94 at Intercontinental and $4.64 at Hobby. However, due to the costs associated with the current capital program, the system's consultant projects that the airline's cost per enplanement will reach $12.69 at Intercontinental in 2006 and $10.37 in 2008 at Hobby. Also, reflecting increased debt service costs, the coverage ratio is forecast to decrease to 1.58x in 2008.

The city is the midst of a $2.95 billion capital program, of which $1.95 billion has been appropriated through fiscal 2002. The program includes extensive terminal renovations and expansions at both Intercontinental and Hobby, as well as the addition of a north parallel runway at Intercontinental. After this issue, the city projects the need for just $270 million in additional bonds through 2007.

The system's primary market area consists of the eight-county Houston - Galveston - Brazoria consolidated metropolitan area (CMSA). The metropolitan area recorded a 10.1% annual gain in population since 1990, to 4.7 million residents at the 2000 census. The regional economy recorded a 7.5% annual growth rate over the past decade as measured by total personal income, outpacing the 5.4% rate for the nation. Major industries include services, 29% of economic output in 1999, followed by transportation and utilities at 10%, and government, also at 10%. Per capita income equals 117.5% and 110.5% of the state and national averages, respectively.

Fitch continues to monitor the $130,250,000 City of Houston, Texas Airport System special facilities taxable revenue bonds (consolidated rental car facility project), series 2001 bonds, rated 'A'. Although the project was delayed due to Tropical Storm Allison and the events of Sept. 11, 2001, the facility is expected to open during March 2003. Also, minor cost overruns and change order have increased the final construction cost. However, the daily-consolidated facility charge (CFC) of $3 remains adequate to support the project and fund all reserve accounts. As of June, the consolidated facility was 69.15% complete.