Fitch Affirms Lee County, Florida's Airport Revenue Bonds 'A', Outlook Stable.

NEW YORK -- Fitch Ratings affirms the outstanding 'A' rating on Lee County, Florida's outstanding $362.2 million airport revenue bonds, series 2000 and 2002. The Rating Outlook is Stable. The bonds are payable from the net revenues generated by the operations of Southwest Florida International Airport (Fort Myers, or the airport).

The 'A' rating reflects the airport's strong historical demand for air service, the lack of material airport competition in the region, and the diverse group of carriers serving a 99% origination and destination (O&D) market. Credit concerns center on the added operating and debt service costs associated with the current capital improvement plan (CIP) and on the risks associated with a tourism-dependent market.

The county owns Southwest Florida International Airport, which is operated by the Lee County Port Authority. Located 15 miles southeast of Fort Myers, the airport consists of a 370,000-foot terminal that supports 17 gates and one 12,000-foot runway capable of handling all aircraft currently in service. The airport's current location provides credit strength as the closest competitors of size (Tampa and Miami International Airports) are more than a two-hour drive from the city of Fort Myers. Nearby airports in Naples and Sarasota, FL, offer significantly less expansive service. Construction of the new terminal, which increases the number of gates to 28, began in February 2002 and remains on schedule for its planned opening in July 2005. The new terminal, combined with a large runway, position the airport well for future passenger demand, limiting the near-term need for revenue bond-funded capital expansion.

Recent passenger demand at Fort Myers has outperformed the nation, with the 3.3 million passengers enplaned in fiscal 2004 (Sept. 30 year-end) marking the second year of record enplanements at the airport. The figure for 2004 was 14% greater than fiscal 2003, and 19% greater than the airport's pre-Sept. 11th 2001 peak in fiscal 2001. Enplanements increased at a 4.3% average annual rate between 1997 and 2001, largely reflecting the entrance of low-cost carriers into the market. Passenger demand declined 7.8% from 2001 to 2002, due to the national recession and the aftermath of the events of Sept. 11. This downturn, however, was moderate in comparison to the approximate 11.5% decline experienced nationally. Current fiscal-year demand remains strong, with data for the first six months of fiscal 2005 showing a 15% increase on the same period for fiscal 2004, putting the airport well ahead of the 4.3% growth that had been forecasted for the current year. The airport's consultant forecasts the airport to record a 4.3% overall growth rate for 2005-2009. Fitch finds these rates reasonable given the strong demand demonstrated thus far.

The growth in service since fiscal 2000 can largely be attributed to the initiation of service by low-cost airlines such as AirTran, JetBlue, and Spirit Airlines into the market. These carriers brought not only expanded destinations, but also stimulated pricing competition among incumbent carriers operating at the airport. A total of 20 passenger airlines serve the airport, including 17 domestic carriers and their regional partners, and three foreign carriers. Delta Airlines accounted for 28% of the airport's enplaned passengers during fiscal 2004, followed by US Airways at 13%, Northwest Airlines (9%), and Continental Airlines at (8%). Following September 11th, both Delta and US Airways reduced frequencies at the airport, while JetBlue Airlines, American Trans Air, Spirit Airlines, and AirTran Airways all increased service. Furthermore, many carriers who had historically operated seasonal winter service announced that they would maintain service through the summer. While the growth in low-fare service has brought expanded travel options and lower ticket prices, it is not known how long this 'low-fare' effect will last. Given the seasonal and discretionary nature of travel to the south Florida market, future growth could be tempered by airline industry consolidation, which could bring about higher fares.

The airport's use and lease agreement, which extends through 2008, employs a fully residual rate-setting methodology that results in consistently stable financial operations. Net revenues generated during fiscal 2004 provided 1.45 times (x) coverage of annual debt service. Management's efforts to increase non-airline revenues, which accounted for 80% of fiscal 2004 total operating revenues, has helped to historically maintain a low cost per enplanement, equaling $2.75 in 2004. However, the increased operating and debt costs associated with the airport's current capital program result in diminished debt service coverage (near 1.28x) and above-average projected cost per enplaned passenger levels, rising above $7.00 in fiscal 2006.