Correct: Fitch Rates Alaska International Airports System Revs 'A+'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Nov. 12, 2003

(A press release issued 11/4 incorrectly described the rating action on the $96 million bonds to be an affirmation. These are new issues. The amended release follows.)

Fitch Ratings-San Francisco-November 4, 2003: Fitch Ratings assigns an 'A+' rating on $96 million State of Alaska, Alaska International Airports System (AIAS) general revenue airport bonds, consisting of $73 million revenue and refunding bonds series 2003A (AMT) and $23 million revenue bonds series 2003B (non-AMT). The Rating Outlook is Stable. The series 2003A and series 2003B bonds are expected to be insured.

The bonds are scheduled for negotiated sale on or about Nov. 12, 2003 through a syndicate led by UBS Financial Services Inc. Fitch also affirms the 'A+' rating on approximately $350 million in outstanding AIAS general airport revenue bonds. Bond proceeds will fund capital improvement projects and refund the 1993 refunding revenue bonds, series I.

The 'A+' rating reflects AIAS's natural monopoly position, enplanement stability, and high origination and destination figures. AIAS consists of two airports and a seaplane base: Ted Stevens Anchorage International Airport (ANC) and Fairbanks International Airport (FAI) as well as Lake Hood /Lake Spenard Seaplane Base. Alaska's location, size, and geographic configuration make air transport. ANC is the main commercial service airport for Alaska; competition from surrounding airports is minimal given the great distances and lack of roads. Combined enplanements at AIAS for FY 2003 were roughly 2.6 million.

Overall AIAS' enplanements have increased at an annual compounded growth rate of 3.3% from FY 1990-2003. The events of Sept. 11 had a minimal impact on enplanements: FY 2002 passenger traffic levels decreased 0.9% compared to 12.7% for the U.S. Future enplanements are projected to grow at an annual compound growth rate of 1.8%. AIAS passenger levels, based on the high origination and destination (O&D) traffic of 81%, have performed relatively well and reflect high demand for passenger service.

Additional AIAS credit strengths are sound financial operations, and significant cargo activity. Operating revenues increased to $76 million in FY 2003 from roughly $68 million in FY 2002, reflecting healthy financial operations. Operating expenses before depreciation and amortization increased to $54.7 million in FY 2003 from $48 million in FY 2002 mostly due to building maintenance and environmental expenses. Despite an increase in operating expenses, operating income increased to $28.6 million in FY 2003 from $25.6 million in FY 2002.

Alaska is advantageously situated on the great circle route -- generally equidistant to Asia, Europe, North America, and the Pacific Rim making it a convenient sorting and handling facility for FedEx and UPS. Bilateral trade agreements have made Alaska's strategic location even more desirable in terms of international cargo hubbing. Cargo operations are a significant portion of AIAS activities, as ANC is U.S.' busiest airport in terms of all-cargo aircraft gross landed weight and North America's third largest airport in terms of cargo tonnage. FY 2004 projections indicate cargo revenues will account for 62% of combined passenger carrier and cargo revenues.

Offsetting AIAS' credit strengths are an increasing debt burden leading to higher than average cost per enplaned passenger (CPE) figures for an airport of this size, and an airline market share concentration. The debt service coverage ratio is projected to dip as low as 1.25x in FY 2007 as new debt comes online. The cost per enplaned passenger (CPE) forecast ranges from $8.63 (FY 2004) to a peak of $13.22 (FY 2010). Airline concentration at AIAS is heavily weighted towards Alaska Airlines both at ANC (53%) and at FAI (77%). Fitch considers high airline concentration a credit risk, however AIAS' natural monopoly position and stable enplanements somewhat mitigate this risk. Lastly, Fitch believes a continually escalating CPE and increasing debt load could exert pressure on the rating.