Fitch Rates Hillsborough County Aviation Auth -- Tampa Int'l Airport -- Rev Bonds 'A+'.

NEW YORK -- Fitch Ratings has assigned an 'A+' underlying rating to the following Hillsborough County Aviation Authority (HCAA), Tampa International Airport (TPA) bonds:

-- $90,330,000 2005 series A (AMT) revenue bonds;

-- $40,315,000 2005 series B (non-AMT) revenue refunding bonds.

The bonds are expected to be insured by an insurer whose insurer financial strength is rated 'AAA' by Fitch Ratings. The Rating Outlook is Stable.

The 2005 series A and B bonds will price the week of April 11 through a negotiated sale lead by Morgan Stanley. The bonds are being issued on parity with approximately $379 million (pro forma) of general airport revenue bonds (GARBs) and $195 million of passenger facility charge (PFC) bonds (pro forma), whose unenhanced ratings are also affirmed at 'A+' by Fitch. GARB debt is secured by net revenues of the airport system, while PFC bonds are secured by a first lien on PFC revenues and a back-up pledge of airport system net revenues.

Proceeds of the 2005 series A bonds will finance the construction of a 5,600-space parking garage and 650-space overflow surface lot ($67.3 million). Additionally, proceeds will fund construction of a 670-space rental car garage and relocation of existing rental car counters from the terminal building to the rental car service building ($15.8 million). Proceeds of the 2005 series B bonds will advance refund approximately $38.8 million of outstanding series 1996B bonds.

The 'A+' rating reflects the strength of TPA's compensatory airline agreement, which allows HCAA to generate significant levels of unrestricted cash flow and internally fund necessary capital projects, its historically healthy operating performance, a competitive cost structure driven by strong non-airline revenue generation, and considerable air carrier diversity. Like many other high origination and destination (90%) sunbelt airports, TPA has a near monopoly on air service for one of Florida's biggest population bases (2.6 million). Taking advantage of this position, TPA operates under a compensatory airline agreement and consistently generates between $24 million and $30 million of excess cash annually after revenue sharing with its signatory carriers. These excess cash balances, which are used mainly for pay-go-capital spending, allow the airport to fund much of its capital needs internally, rather than through the issuance of debt. Consequently, over the forecast period, Fitch expects the authority to cover debt service on roughly $705 million of pro-forma debt by a minimum of 1.6 times (x), which is well above the 1.25x rate covenant. CPE (cost per enplanement) levels, while currently quite low at just $4.21, are expected to remain at or below $5.00 (through fiscal 2014), as the authority's capital plan ($322 million) assumes no additional bonding.

Though traffic grew at an average annual rate of just 1.6% between fiscal 2000 and fiscal 2004, HCAA's financial performance remained healthy. Over this period, the airport's operating ratio ranged between an impressive 54% and 58%, and was bolstered by consistently strong generation of non-airline revenues, in particular parking. Non-airline revenues typically fund the lions' share of HCAA's budget (67% during fiscal 2004), with payments from TPA's diverse mix of air carriers (the largest two (Southwest and Delta) together enplaning just 42% of the market) accounting for much of the remainder. In Fitch's opinion, a portion of the more than 10% growth in enplanements during fiscal 2004, from 7.6 million to 8.5 million, stems from increasing operations of both low-cost carriers (LCCs) and the low-cost subsidiaries of the major airlines (e.g., TED and Song). In addition to Southwest, LCCs with a growing presence at TPA include both Air Tran (5%) and JetBlue (4%).

Ongoing credit concerns include TPA's vulnerability to several bankrupt or financially struggling air carriers, most notably Delta, moderate exposure to potentially volatile leisure traffic, competition, albeit minimal, with Orlando International Airport (MCO), which results in some passenger leakage, and the likelihood that a portion of the recent surge in traffic at TPA is artificial, based solely upon the current unsustainably low air fare environment. While any pull-down in service by Delta could yield moderate operating and or financial pressures over the short term, TPA's strong O&D (origination & destination) traffic base and low airline costs create incentive for the expedient replacement of air service. Moreover, helping to mitigate the risk relating to short-term artificial demand, airport activity and financial projections are based upon conservative assumptions.