Fitch Affirms Aruba Airport Authority, N.V. At 'BBB'; Stable Outlook.

NEW YORK -- Fitch Ratings affirms the unenhanced long-term rating on Aruba Airport Authority, N.V.'s (the authority) following bond issues:

--$37.2 million Aeropuerto Internacional Reina Beatrix airport revenue bonds, series 1997A;

--$17 million Aeropuerto Internacional Reina Beatrix airport revenue bonds, series 1997B;

--$18.4 million Aeropuerto Internacional Reina Beatrix airport revenue bonds, series 1999.

The Rating Outlook is Stable. The series 1997A bonds are insured by MBIA, whose financial insurer strength is rated 'AAA' by Fitch. The series 1997A and 1997B bonds mature serially on Jan. 1, 2013, while the series 1999 bonds mature serially on Jan. 1, 2015. Each of the bonds issued by the authority was privately placed pursuant to Rule 144A of the Securities Act of 1933. Revenues derived from the authority's ownership and operation of Aeropuerto Internacional Reina Beatrix (AUA), including amounts derived from rates, rentals, fees, and charges, including the passenger facility charge (PFC) and other passenger fees, secure the bonds. Aruba's PFC is similar to a departure tax established by the authority and is not administered under the guidelines of the U.S. Federal Aviation Administration (FAA) PFC Program.

The 'BBB' rating reflects Aruba's rebounding tourism market; recovering enplanement levels; and the government's continued role in economic development and support of tourism, an industry which both directly and indirectly provides 55% of GDP and 69% of employment on the island. Additional credit strengths include the airport's increased air carrier diversity, with several U.S. airlines expanding and/or providing service to new North American destinations; passenger facility charge collection procedures and policies which are targeted to ensure airline payments are made on time and in full; and the relatively short debt amortization of both the 1997 (2013) and 1999 (2015) bonds.

After enduring a prolonged period of depressed visitation levels since peaking at approximately 722,000 during 2000, Aruba's tourist friendly reputation, and favorable year round climate (located outside the hurricane belt) have helped to re-energize travel demand from several key markets. PFC eligible enplanements declined by nearly 17% between fiscals 2000 and 2003, to 747,000, as the events of Sept. 11; the outbreak of SARS; and the initiation of hostilities with Iraq resulted in reduced leisure travel demand worldwide. For the first seven months of 2004, however, enplanement levels noticeably improved, equaling 497,000, approximately 19% better than a conservative budget estimate, and 17% ahead of levels recorded during the prior year period. Increased travel from the United States, Aruba's largest tourist market (72% of total stay-over arrivals), and Europe are directly credited with this dramatic turnaround. Fitch notes that the health of Aruba's tourist trade will continue to have important ramifications for AUA going forward, especially as the majority of visitors to the island are leisure travelers arriving via scheduled air carriers.

During April 2004, the authority concluded a strategic co-operation agreement with Schipol International B.V. (Schipol), the international branch of Schipol Group, an experienced international airport operator. Pursuant to this agreement, which expires on 2007 unless mutually extended by both parties, Schipol will provide technical services to the airport and a managing director responsible for the administration of operations at AUA. Fitch views this arrangement as a positive development for the airport, especially given Schipol's sold track record of airport management.

The combination of reduced passenger throughput and several one-time items yielded a $6 million bottom line loss (inclusive of both depreciation and interest expense) for the authority during both fiscals 2002 and 2003. However, on an EBITDA basis, the operating margin remained comparable to prior years at 35%. Fitch notes that both depreciation and interest increased substantially since fiscal 2000, reflecting the opening of AUA's new terminal complex and the ramp up in debt service on the series 1997 and 1999 bonds. Debt service coverage, while equaling the 1.35 (x) rate covenant for fiscal 2002, improved to 1.45 (x) for fiscal 2003, and highlighted moderate growth in both aeronautical (7%) and non-aeronautical revenues (3%), and a slight (2%) reduction in operating expenditures. Fitch notes that since Schipol's arrival in early 2004, the authority is aggressively pursuing operating cost reductions and is aggressively seeking to maximize the revenue generating potential of AUA's modern airport facility.

Fitch continues to deem the sovereign credit risks within this transaction as minimal based on the credit structure and a detailed evaluation of basic sovereign risks. The devaluation of the Aruban Florin is not a large risk because the credit structure provides for the capture of U.S. dollars from U.S. airlines and most foreign flag airlines. All other monies must be remitted in Aruban Florins and then once transferred to the revenue fund are converted into U.S. dollars. The historic stability of the Aruban Florin, which has been pegged at a rate of $1.79 to the dollar since 1986, and is supported by the government's diligence in maintaining adequate international reserves, helps to mitigate devaluation risks upon the monthly conversion of Florin denominated revenue fund transfers into U.S. dollars. Another typical sovereign risk, the potential debt service payments, is almost entirely mitigated by the transaction structure which directs payments from an off shore trustee in U.S. dollars. The current airlines have been, and all future airlines will be, notified to make all payments directly to the trust rather than the authority, and Aruba has agreed that the trustee has the right to enforce direct payment from the airlines. Aruba is well-guarded for market orientation and application of rule of law, making appropriation and confiscation risks extremely low. Furthermore, Fitch received opinions from counsel that payments made to the trust would not be subject to repatriation Aruba under either the Act of State Doctrine or principles of comity.

On-going credit concerns include AUA's dependence on a single industry, tourism, which can be both competitive and cyclical; and considerable revenue concentration, as passenger facility charges (PFCs) and related fees account for 71% of operating revenues. Fitch notes that while average fees per passenger staying on Aruba for greater than 24 hours have increased to $36.75 per person, this charge is minimal relative to the total ticket price paid by most visitors to the island. Unlike the U.S., the authority retains has full discretion to move PFC and other passenger fees to levels necessary to preserve financial flexibility.