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Fitch Affirms Memphis-Shelby County Airport Authority (Tennessee) GARBs at 'A+'.

CHICAGO -- Fitch Ratings affirms its underlying 'A+' rating on approximately $552.2 million outstanding general airport revenue bonds (GARBs) issued by the Memphis-Shelby County Airport Authority, Tennessee (the authority). The Rating Outlook is Negative. The bonds are payable from the net revenues generated by the operation of Memphis International Airport (the airport). The lead managing underwriter for the airport's most recent bond offering was Morgan Keegan and Co., Inc.

The 'A+' rating reflects the airport's status as the central sorting location for Federal Express Corp., which makes the airport the largest cargo airport in the world; consistently sound financial operations with a cost per enplaned passenger at a moderate $6.79 and debt service coverage of 1.35 times (x) on the outstanding GARBs in fiscal 2005 (year ended June 30); and a moderately scaled capital program with minimal anticipated future borrowing needs. Credit concerns, and the negative rating outlook, center on the financial condition of Northwest Airlines (Northwest), the airport's largest passenger carrier which operates its third largest network hub at Memphis. While other carriers would likely enter the market to serve origination and destination passengers should Northwest's financial condition lead it to significantly alter its operations at the airport, the authority would likely experience a displacement in its financial operations.

The airport ranks as the 35th busiest passenger facility in the nation, having served 5.4 enplaned passengers in fiscal 2005. Passenger levels have fluctuated in the past few years as Northwest implemented several schedule adjustments following the overall decline in travel demand after the events of September 11, 2001 and to address its own financial difficulties. Northwest, including its regional affiliates is the airport's leading passenger carrier, representing 80.2% of total enplanements in fiscal 2005. Delta is the next largest passenger carrier at 7.3% of total enplanements in fiscal 2005, followed by American at 2.9%.

The presence of Federal Express balances the operations of the airport and provides a cushion against any decline at Northwest. Federal Express accounted for 98% of total cargo volume at the airport in fiscal 2005, and has represented at least 92% of such activity since fiscal 1992. Cargo volume increased at an 8.5% annual rate over the past five years, with much of this growth related to Federal Express becoming a contract carrier for the United States Postal Service in 2001.

The airport's consistently sound financial operations reflect the residual nature of the use and lease agreement, which expires in June 2007. Operating revenues increased in each of the last four years, driven by gains in non-aviation sources such as parking, rental cars, and concessions. Airport management successfully controlled operating expenses, which rose at a scant 0.3% average annual rate from fiscal 2002 to 2005. As a result, the airport retained a competitive cost structure, while debt service coverage was in line with the rate covenant as allowed under the use and lease agreement. Northwest and Federal Express combined to account for over 60% of airport operating revenues in fiscal 2005.

The airport's modest capital program is almost fully funded at this point, resulting in minimal future borrowing needs. The program includes airfield work, a portion of which is in preparation for Federal Express' deployment of the Airbus A380 freighter aircraft, and roadway projects to improve traffic flow at the terminals and make room for a new FAA control tower. The airport is considering construction of additional parking space, which if undertaken may require external borrowing.

The airport serves the eight-county Memphis metropolitan statistical area (MSA), which ranks as the nation's 41st, largest with 1.2 million residents. Per capita income approximates the national average, while economic growth slightly lagged the national rate since 1995. Unemployment in the MSA stood at 5.7% as of May 2006, well above the national average of 4.4%

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Comment:Fitch Affirms Memphis-Shelby County Airport Authority (Tennessee) GARBs at 'A+'.
Publication:Business Wire
Geographic Code:1USA
Date:Aug 3, 2006
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