Fitch Rates $600MM Miami-Dade County, Florida Aviation Revs 'A'; Outlook Stable.

CHICAGO -- Fitch Ratings assigns an 'A' rating to Miami-Dade County, Florida's (the county) approximately $600 million aviation revenue bonds, series 2007 A (subject to the federal alternative minimum tax (AMT)) and B (non-AMT), scheduled for negotiated sale during the week of May 14 through a syndicate led by UBS Investment Bank. The bonds are secured by net revenues of the county's Port Authority Properties (PAP), the main asset of which is Miami International Airport (the airport). Proceeds will finance a portion of the airport's capital improvement program (CIP) and refund outstanding commercial paper. The airport plans to insure the bonds with a monoline bond insurance company whose insurer financial strength is rated 'AAA' by Fitch. Fitch also affirms the unenhanced 'A' rating on the county's approximately $3.4 billion of outstanding aviation revenue bonds. The Rating Outlook is Stable.

The 'A' rating is based upon the airport's role as the nation's leading international gateway to the Caribbean and Latin America; significant cargo operations that offset costs normally borne by passenger carriers alone; strong demand for air service from the local market; a diverse mix of domestic and international passenger and cargo airlines; and enhanced management oversight of the capital improvement program.

Credit concerns center on the size and complexity of the airport's $6.2 billion CIP and resultant use of leverage and high cost structure; American Airlines' dominant share of the market, which leaves the airport vulnerable to the carrier's future routing decisions; significant competition within the south Florida market for domestic passengers; and the airport's reliance on international travel for a considerable proportion of total passenger traffic.

The Stable Rating Outlook reflects the airport's recent actions to enhance oversight of the CIP, complete design of the North Terminal development, conduct independent cost estimate reviews, and realign the construction the North Terminal, all of which combine to provide more certainty to the cost of the CIP. Still, these efforts resulted in the realization of an approximate $1 billion increase in cost over the 2005 estimate. While approximately 90% of the North Terminal program is completed, under construction, or bid, Fitch recognizes that some risk of additional cost increases remains due to the tight labor market in South Florida and the world wide demand for construction related commodities, as well as potential scope changes and the region's susceptibility to tropical storms.

The airport served 16.1 million enplaned passengers in 2006, reflecting a 0.5% average annual growth rate from 2001. This period includes a series of events that affected air travel in general from 2001 to 2003, increased security measures that reduced international-to-international connecting activity at the airport, and increased competition in the South Florida region for domestic passengers. However, during the last three years enplanements increased at a 3.2% average annual rate as American responded to the domestic competition by reducing fares at the airport, recapturing market share from other regional facilities, and the strengthening economy promoted increased international travel. Still, the airport's feasibility consultant conservatively projects enplanements will increase at just a 2.1% average annual rate between fiscal 2006 and fiscal 2018.

The airport is served by a diverse mix of airlines, including 17 scheduled domestic passenger carriers, 33 foreign flag airlines, and 23 all cargo carriers. However, American and regional affiliate, American Eagle, accounted for approximately 68% of the airport's total enplanements in fiscal 2006, up from 54% in 2001. This heightened level of concentration represents a credit concern, as the airport's financial performance becomes increasingly influenced by the operational decisions of a single carrier. This concern is somewhat mitigated by the number of carriers serving the airport, many of whom Fitch believes would act quickly to capture market share in response to any decline by American.

Financial performance has been stable as the airport passenger base recovered starting in 2003. Aviation fees led the growth in revenues, averaging 8% on average per year from 2003 to 2006 as the airport raised airline rates and charges to match increasing debt service payments. Airport management has also been quite successful in containing operating expense growth to 1% on average annually during that same period. Debt service coverage provided by net revenues was approximately 1.37 times (x) in fiscal 2006, down somewhat 1.44x in fiscal 2003. Debt service costs increased 15% during that period. Based on the enplanement forecast and the financial structure of the airport, and allowing for $2.6 billion in additional debt through 2010, the consultant projects coverage from net revenues to equal at least 1.3x through 2015.

The airport's $6.2 billion CIP is designed to meet the airport's needs through 2015. The airport plans to finance the program through a mix of sources including federal grants, state grants, passenger facility charge (PFC) receipts, and approximately $2.6 billion in additional general airport revenue bonds. Based on the scope of the capital plan and incorporating the enplanement forecast, the consultant projects that the airport's cost per enplaned passenger (CPE) will rise to $35.51 in fiscal 2015 up considerably from $15.28 in fiscal 2006.

While the airport's forecasted CPE is above that of comparable domestic airports and remains an ongoing credit concern, a portion of the airport's costs represent higher capital expenditures for international gates, which are offset by higher yields attained by the airlines for international travel. Additionally, Fitch recognizes the conservative traffic growth assumptions which underpin this forecast.

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