Fitch Rates & Upgrades Reno-Tahoe International AP Rev Bnds to 'A'; Stable Outlook.

SAN FRANCISCO -- Fitch Ratings assigns an 'A' rating and Stable Outlook to $29,285,000 Reno-Tahoe Airport Authority, Nevada (formerly known as Airport Authority of Washoe County) airport revenue refunding bonds, series 2005 (non-AMT). Proceeds of the series 2005 bonds will be used to refund the series 1996A bonds. Expectations are that the series 2005 bonds will sell through negotiation led by UBS Financial Services on or about July 19. The airport authority intends to insure the bonds through a monoline insurance company rated 'AAA' by Fitch. Fitch also upgrades to 'A' from 'A-' approximately $49 million of outstanding parity revenue bonds and maintains the Stable Outlook.

Reno Tahoe International Airport (RNO, or the airport) and Reno Stead Airport, a general aviation airport, are both operated by the Reno-Tahoe Airport Authority, Nevada. RNO is located four miles southeast of the central business district of Reno, Nevada, and serves the population in eight Nevada counties and the major cities of Reno, Sparks, and Carson City. In total, the airport's service area has approximately 1.1 million residents. The airport's facilities include three runways, one main terminal with two concourses, and 23 gates. Excess capacity exists at RNO and no major capital improvements requiring future bond issues are currently underway or planned.

Credit strengths include RNO's role as the primary airport in an expanding service area, strong financial margins, low cost structure, and experienced management. Other competing airports are between 100-250 miles from the airport, yet some provide similar or more extensive airline service. RNO's service area has grown 83% since 1980 and Washoe County's median income level of $43,604, exceeds the state and the nation. Central to the rating upgrade is the airport's strong fiscal 2004 (June 30 year end) balance sheet, with 646 days of cash on hand (unrestricted cash and investments divided by operating expenses), and low level of current debt with maximum annual debt service (MADS) in 2011 of $11.2 million and thereafter declining to $2.4 million through 2026. Furthermore, during fiscal 2004, RNO's operating revenues increased 5% to $36.4 million, while operating expenses also increased, to $25.9 million or up 6%. Overall, operating revenues have rebounded to their fiscal 2000 level, but during the 2001-2004 timeframe operating expenses have grown more substantially, resulting in a slightly lower but still solid fiscal 2004 operating margin of 29%. However, debt service coverage in fiscal 2004 was quite strong at 1.89 times (x), well above RNO's 1.25x rate covenant. Financial margins during fiscal 2004 indicated that non-airline revenues as a percentage of operating revenue exceeded 75% and debt service as a percentage of operating revenue declined to a low 18%, both better than industry averages. During fiscal 2004, the cost per enplanement remained moderately low at $3.76, which is important since Southwest Airlines, a low-cost airline, served 47% of the airport's passengers. Experienced management has enabled the airport to focus on developing a strong balance sheet and solid financial margins, while maintaining a low cost structure and debt levels.

Credit concerns center primarily on historical enplanement volatility. Over the last 23 months, passenger enplanements have risen 12.4% to over 2.4 million, yet still reflect a decline of 20% since fiscal 1996. During the 1996-2000 time period RenoAir operated a hub at the airport, then reduced its flights, and finally American Airlines later acquired the carrier. American Airlines continued to implement service reductions through 2002, essentially eliminating the RenoAir hub that it purchased. After the events of Sept. 11, three of RNO's airlines reduced flights. However, during this period of operational volatility, the airport's financial margins remained stable and over the past two years have grown substantially. Some of the balance sheet growth reflects flood settlement proceeds of approximately $29 million, a one-time revenue source, but management intends to maintain strong cash balances. Approximately $8 million of cash is intended for use as matching funds for near-term capital needs. Fitch views the potential for future air service growth at RNO as strong, since the service area economy continues to expand and diversify. Moreover, since the demise of RenoAir, the airport functions solely as an origination and destination (O&D) facility, so passenger growth will now follow the natural economic patterns.

Fitch's rating definitions are available on the agency's public web site, 'www.fitchratings.com'. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.