Fitch Affirms New Orleans Airport PFC Rev Rfdg Bonds at 'A-'; Outlook Negative.

SAN FRANCISCO -- Fitch Ratings affirms the 'A-' rating on approximately $28.6 million outstanding New Orleans Aviation Board (NOAB) Passenger Facility Charge (PFC) revenue refunding bonds series 1999. The bonds are solely secured by passenger facility charge revenues collected at Louis Armstrong New Orleans International Airport (the airport). The Rating Outlook remains Negative, reflecting the uncertainty of future enplanement levels and return of the New Orleans leisure and tourism market. Fitch does not rate NOAB's general airport revenue bonds.

The affirmation of the airport's 'A-' PFC bond rating reflects the significantly underleveraged PFC revenue stream, which has historically resulted in exceptionally strong debt service coverage and liquidity levels. PFC debt service coverage in FY2004 (the last year of audited results available) was 6.37 times (x) and FY2004 PFC revenues available were $19.4 million, or six years of PFC bond debt service coverage. The airport's PFC debt service coverage calculation includes both the 1999 PFC bonds and a subordinate interim PFC credit facility that is not rated by Fitch. However, based on the airport's January 26, 2006 Financial Recovery Plan, 2006's total PFC debt service is $5.5 million, resulting in debt service coverage of 2.06x and a $5.8 million surplus. To further assess the strength and flexibly of the PFC revenue stream, Fitch ran various stress scenarios. The most severe test illustrated that if the airport only enplaned 1.5 million PFC eligible passengers, it would still make PFC debt service payments annually.

Moreover, the exceptionally strong PFC liquidity available in various funds provides further insulation from the operational shock of Hurricane Katrina. At the end of FY2005, the airport reported $37.8 million in unrestricted PFC accounts. Airport management intends to utilize $19 million of that amount for the payment of capital projects that were deemed PFC eligible by the Federal Aviation Administration (FAA). The remaining $18.8 million will remain available for PFC debt service payments and represents approximately three years of PFC debt service payments, including the credit facility. In addition, the airport maintains a fully funded cash debt service reserve fund of $3.05 million, equal to maximum annual debt service. Fitch believes that both the significantly underleveraged PFC revenue stream and the exceptionally strong PFC liquidity levels maintained by the airport will mitigate the near term-decline in enplanements, although substantial.

Post-Hurricane Katrina, the airport reopened to commercial traffic on a limited basis on Sept. 13, 2005, with most airlines scheduling service to meet the demands of the affected and severely constrained service area. Based on announced service additions as of June 10, 2006, the airport will offer 101 daily flights with 11,921 available seats, compared to 166 daily flights with 21,000 seats immediately prior to Hurricane Katrina. To date, service has been restored to 29 of the 42 markets previously served from the airport, with main-line carriers quickly restoring service to major hubs in Atlanta, Chicago, Dallas-Fort Worth, and Houston (both Intercontinental and Hobby). Southwest Airlines, the airport's largest carrier, announced service for June 2006 with six more flights, bringing them to 40% of their June 2005 schedule. Also, United has added nonstop service to San Antonio and Oklahoma City, two destinations not served from the airport prior to Katrina. According to the Aviation Board's January 26th Financial Recovery Plan, the airport is expected to reach pre-Katrina levels in 2008. The rescheduling and reallocation of aircraft to this market will be closely monitored by Fitch.

The airport faces substantial challenges relating to operating revenues and expenses. The January 26th Financial Recovery plan anticipates the airport's revenues to decline to $39.8 million in 2006 from $52.6 million in 2005, representing a 24% decrease in revenue. The airport has made every effort to control its operating expenses and has taken a number of cost control efforts, including a reduction in personnel, in direct relationship to the number of passengers utilizing the facility. The airport forecasts that it will achieve break-even operations in December 2008. As a result of Hurricanes Katrina and Rita and a recent tornado, overall damage to the airport is estimated to range from $55 million-$63 million. Considering the various natural disasters that recently plagued the New Orleans area, the airport remains substantially operational, having only temporarily lost the use of five jet bridges on Concourse C. The airport's capital plans are currently on hold as the focus has changed to improving the structural integrity of the airport. The airport plans to fund the repair of these damages with an $8 million FEMA Community Disaster Loan, $15 million FAA Airport Improvement Program Grant (no local matching funds required), and insurance proceeds.

Fitch will closely monitor the airport's passenger traffic throughout 2006 as the tourism industry and local economy rebuild. Fitch credits airport management for adequately assessing the impact of Hurricane Katrina and establishing a conservative Financial Recovery Plan as early as November 2005, and continuing to reassess the plan as traffic recovers. Currently, airport management is pursuing an operating line of credit to assist with cash flow issues and evaluating the costs and benefits of restructuring all or a portion of the outstanding debt.

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