Fitch Rates Indianapolis' Airport Bonds 'A+'; Outlook Stable.

CHICAGO -- Fitch Ratings assigns an 'A+' rating to approximately $215 million Indianapolis Local Public Improvement Bond Bank (the bond bank) bonds, series 2005 B (Indianapolis Airport Authority Project) scheduled for negotiated sale during the week of Oct. 17 through a syndicate led by UBS Financial Services, Inc. The Rating Outlook is Stable.

The bonds are ultimately secured by a net revenue pledge of the Indianapolis Airport Authority (the authority), which owns and operates the Indianapolis International Airport (the airport). Proceeds will finance various elements of the authority's capital improvement program, notably the construction of a new mid-field terminal at the airport. Fitch also affirms the 'A+' rating for the authority's approximately $396.3 million of outstanding parity debt, which has been largely issued through the bond bank.

The 'A+' rating for the authority reflects the broad and expanding economic base of the Indianapolis region and the resultant demand for air service; the airport's demonstrated resiliency to recent changes in the provision of air service in the local market; a well-diversified mix of carriers serving the airport; and the airport's competitive cost position. Credit concerns include the cost and construction risk represented by the airport's large capital improvement program and the financial difficulties of the domestic airline industry, particularly those of Northwest Airlines (Northwest; issuer default rating of 'D' by Fitch), the airport's largest carrier, which recently filed for bankruptcy protection. The Stable Rating Outlook is based on the recent growth in enplanement activity at the airport, the response to Northwest's recent increase in service, and the likelihood that this demand would result in other carriers increasing service should Northwest be forced to reduce its operations at the airport.

The airport is the primary commercial facility serving the Indianapolis metropolitan area. The region's expanding economy, which has grown at rates at or above the state and national averages for the past 10 years, generates strong demand for air service. Enplanements reached a record 4 million in 2004, a 9.4% increase from 2003, to rank the airport as the nation's 49th busiest. Through the first seven months of 2005, traffic at the airport is running 10.1% ahead of the 2004 level.

Northwest's expansion during the past 12 months offset declines by ATA Airlines, sustaining passenger levels at the airport. Northwest is now the airport's largest carrier, representing 25.8% of enplanements for July 2005, followed by the combined USAir/America West at 13.5% and Southwest at 13.2%. The large presence of low-cost carriers, which accounted for 26% of enplanements in July 2005, helps keep the average fare at the airport ($137) below the national average at $146.

The authority's residual use and lease agreement results in consistently sound financial operations. The airport's ability to generate substantial non-airline revenue, which represented 57% of total operating revenue in fiscal 2004, sustains the airports reasonable cost per enplaned passenger (CPE) of $7.04 for the year. The significant presence of FedEx, which operates its second-largest sorting facility at the airport, also contributes to the airport's competitive cost environment, as airfield expenses are distributed across a broader customer base than airports with lesser amounts of cargo activity. The airport's fiscal 2004 net revenues provided 1.98 times (x) coverage of senior debt service for the year.

The airport is in the midst of $1.5 billion capital improvement program (CIP), the centerpiece of which is a new mid-field terminal scheduled to open in 2008. The authority plans to finance the CIP through a mix of general airport revenue bonds (55%), passenger facility charge (PFC)-backed debt (14%), airport funds (12%), federal grants (13%), and PFCs on a current basis (6%). The program is expected to result in the CPE rising to a slightly above average $10.92 in 2010. Reflecting the residual nature of the use and lease agreement, debt service is projected to exceed 1.85x through 2010.

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