Correction: Fitch Downgrades St. Louis, MO's Rev Bonds for Lambert International Airport to 'BBB+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 15, 2003

(This is a revised version of a press release issued earlier today containing an amended dollar amount for the outstanding revenue bonds.)

Fitch Ratings downgrades the rating for the City of St. Louis, Missouri's $934.6 million outstanding revenue bonds for Lambert-St. Louis International Airport (Lambert or the airport) to 'BBB+' from 'A-', and removes the rating from Rating Watch Negative. The Rating Outlook is Negative.

The downgrade reflects the impact on the airport's financial operations of American Airlines' (American or the airline, senior unsecured debt rated 'CCC+' by Fitch Ratings) recently announced schedule reductions at Lambert that take effect November 1, 2003. The Negative Rating Outlook reflects the increased cost per enplaned passenger resulting from American's actions, a portion of which other carriers will be forced to absorb during a period of continued financial difficulties for the domestic airline industry. The economic sensitivity of the airlines may complicate the renegotiation of the airport's use and lease agreement, which expires Dec. 31, 2005. Furthermore, as American remains the largest carrier at Lambert, even with its reduced schedule, the airport remains vulnerable to additional operational shifts by the airline over the short- to medium-term.

American plans to reduce its operations at Lambert by approximately 207 daily flights, or slightly more than half of its current daily schedule. However, as American plans to eliminate significantly more mainline departures, which decline to 53 per day from 212, than flights operated by its regional affiliates, which decline to 154 per day from 209, the changes result in the airline's overall capacity declining by an appreciably greater percentage.

Reflecting these changes, the airport's consultant projects American to serve 5.4 million enplaned passengers for the fiscal year ending June 30, 2004, compared to 9.0 million in fiscal 2003. Assuming the airline does not implement additional schedule reductions, the consultant projects American's passenger volume declines further in fiscal 2005, the first full fiscal year of American's reduced operations, to 3.6 million enplanements. Based on this forecast, the consultant projects American's market share to stabilize at approximately 50% of total enplanements at the airport in fiscal 2005, compared to its 76.6% share in fiscal 2003.

The airport's consultant projects overall enplanements at Lambert to decline 24.6% in fiscal 2004 and 18.3% in 2005. Diminished connecting traffic accounts for almost the entire decline, as the consultant expects origination and destination volume to remain stable during this period. Based on announced schedule additions by other carriers and assuming a period of economic expansion, both nationally and locally, the airport consultant projects a resumption of growth at the airport in fiscal 2006, with passenger volume rising at an average annual rate of 3.7% through fiscal 2009, when the airport attains 8.4 million enplanements.

While American remains financially responsible for all of its gates at the airport through December 2005, the airport estimates total operating revenues will decline by 4.2% in the current fiscal year as a result of the lower passenger levels. In response to the anticipated revenue decline, airport management initiated a mid-year budget review and identified potential cost reductions of approximately $7.4 million. This amount includes restrictions placed on future expenditures and the elimination of approximately 100 positions. This follows the elimination of another 90 positions effective in June 2003.

Reflecting the airport's residual use and lease agreements, the airport consultant forecasts debt service coverage from net revenues to remain at a sound 1.3 times (x) in fiscal 2004, though down from 1.4x in 2003. However, as a result of the lower passenger volume and reduced revenues attributable to American's diminished operations, the consultant's revised forecast indicates the airport's cost per enplaned passenger (CPE) for signatory airlines will rise to $7.41 in fiscal 2004, from $5.88 in fiscal 2003, and peak in fiscal 2007 at $13.46. These figures represent a substantial increase from earlier estimates that indicated the airport's CPE would equal $5.79 in fiscal 2004 and peak at $8.05 in fiscal 2007. Furthermore, Fitch considers these revised CPE figures to be above average for similar airports.

The airport remains within budget and on schedule with its $1.1 billion project to add a third parallel runway, which is scheduled to be placed in service during the first quarter of 2006. As part of its expenditure reductions, the airport identified project elements totaling $85 - $110 million that may be deferred to later segments of the program without significant financial ramifications. Also, the airport recently approached the Federal Aviation Administration (FAA) seeking up to $100 million in additional grants for the runway program. The FAA has been receptive to the city's request, and expects to make a decision regarding additional funding shortly.

The city appointed a task force to determine how best to capitalize on Lambert's strengths, which include an attractive geographic location and a local market that ranks as the nation's 17th largest metropolitan area in terms of population and 22nd largest in terms of economic output, to attract additional service. Already other carriers have instituted or announced a total of 24 additional flights to the airport, slightly offsetting American's reductions. However, Southwest Airlines (Southwest or the carrier, senior unsecured debt rated 'A' by Fitch Ratings), the airport's second largest carrier, has yet to announce any schedule adjustments at Lambert. As Southwest maintains the capacity to increase the utilization of its gates at the airport with minimal capital investment, Fitch believes the possibility remains for the carrier to increase service at Lambert over time.