Fitch Rates Metro Washington Airports Authority, D.C. $179MM Bonds 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to Metropolitan Washington Airport Authority (MWAA, or authority), D.C. as follows:

-- $10.16 million of airport system revenue refunding bonds, series 2005D (non-alternative minimum tax (non-AMT));

-- $164.28 million of airport system revenue refunding bonds, series 2007A (AMT).

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 series 2005D and 2007A bonds will price via negotiated sale on or about Sept. 15. Bear Stearns & Co., Inc. will act as the book-running senior manager on the series 2005D bonds while Lehman Brothers will act as the book-running senior manager on the series 2007A bonds. The series 2005D and 2007A bonds are being issued on parity with approximately $3.2 billion of outstanding airport system revenue bonds, whose unenhanced ratings are also affirmed at 'AA-'. Net revenues generated by Dulles International Airport (IAD, or Dulles) and Washington Reagan National Airport (DCA, or National) secure the bonds.

Proceeds of the series 2005D bonds will be used, together with other authority funds, to advance refund approximately $12.1 million of outstanding series 1997A bonds maturing 2008-2010 and the 2023 term bond. Proceeds of the series 2007A bonds will provide for a forward delivery current refunding of approximately $161.7 million of outstanding series 1997B bonds maturing 2007-2023. The series 2007A bonds have an expected delivery date of July 3, 2007.

The authority's 'AA-' rating reflects the strong competitive position and complementary service offerings of both Dulles and National, historically sound financial performance and debt service coverage, conservative forecasting practices, and an experienced management team. Offsetting credit risks include considerable airline concentration in bankrupt or financially struggling carriers at IAD and DCA, an increasing debt burden, and rising airline costs.

The Chapter 11 bankruptcy status of both UAL Corp., parent of United Airlines, and US Airways, and the severe financial stress facing low-cost carrier Independence Air, remain ongoing credit concerns. United is the largest carrier at IAD, with mainline and regional operations accounting for approximately 56% of total enplanements during 2004. Independence Air, formerly Atlantic Coast Airlines, and once United's main regional partner at Dulles, enplaned the second largest share at 13%. At DCA, US Airways and its regional partners generate the lion's share (37%) of traffic.

While all three carriers appear committed to maintaining sizable operations within the D.C. area, Fitch believes that considerable risks lie ahead as United and US Airways complete their court supervised reorganization and Independence Air attempts to lower unit operating costs to more competitive, sustainable levels. In the case of United and US Airways, cessation of service by either airline would likely cause a temporary, though sizable, gap in service at their respective airports. The impact of a reduction or cancellation of service by Independence Air, while less severe, would also create a short-term loss of service to certain markets, though much of it would be absorbed by other carriers, notably United. To date, United has affirmed its airline agreement and agrees to pay the $4.5 million in debt owed to the MWAA upon its emergence from bankruptcy. US Airways, which currently owes MWAA $1.1 million in pre-petition claims, has not yet confirmed its airline agreement, though expects to do so shortly. Independence Air remains current on all payments to the authority.

Offsetting the moderate airline concentration risk is the strong origination and destination (O&D) profile of traffic at both IAD (70%) and DCA (87%), favorable demographic trends within the service areas of both airports, and an overall competitive cost and debt profile. Air carriers recognized these strengths during 2004 and expanded operations. At Dulles, enplanements increased by a noteworthy 35% to 11.3 million, reflecting a surge in demand stimulated by low fares of Independence Air and the retaliatory pricing and service tactics of competing carriers. As MWAA management recognizes annual enplanement growth at this level is neither realistic nor sustainable, capital planning at IAD contemplates only modest (4%) traffic growth. National's traffic rebounded by 12% to approximately eight million enplanements during 2004, a level exceeding the peak recorded prior to Sept. 11, 2001. However, future traffic growth is expected to be more modest at DCA (growing generally between 2%-3%), reflecting its status as an FAA slot-controlled facility.

The authority's experienced management team successfully meets the challenges of implementing a large capital program ($3.9 billion) while also consistently generating healthy financial results. During 2004, the authority generated an operating ratio of 43%, which is consistent with authority performance prior to Sept. 11, 2001. Results recorded for the first seven months of 2005 are similar, with an operating ratio of 44% generated on total operating revenues of $277 million. Debt service coverage equaled a healthy 1.7 times (x) during 2004, providing cushion for bondholders above the 1.25 times (x) rate covenant. As of Dec. 31, 2004, the authority maintained unrestricted liquidity totaling approximately $240 million, equaling a healthy 8% of pro forma debt. Management maintains strong oversight on accounts receivable from both bankrupt and nonbankrupt airlines serving DCA and IAD.

Airline-related costs are expected to rise as the authority issues additional debt through 2011 to finance completion of the CCP. During 2009, the year during which all such debt will have been issued ($1.2 billion), cost per enplaned passenger (CPE) levels will approach $22 at Dulles, up considerably from the $12.34 reported during fiscal 2004. Likewise, at National, CPE will rise to above $14 from the currently competitive $11.84. Under a stress case where IAD would lose its hub status and experience a 75% decline in connecting enplanements and where DCA would experience no traffic growth, CPE would increase to approximately $37 at IAD and $16 at DCA. Though well above historical norms, Fitch notes that the assumptions underpinning the stress case are extremely conservative and recognizes that the modular nature of the CCP allows for cancellation or deferral of projects if needed.

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