Fitch Rates Metro Washington Airports Authority, D.C. $300MM Bonds 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to Metropolitan Washington Airport Authority (MWAA, or authority), D.C.'s $300 million of airport system revenue refunding bonds, series 2006A (alternative minimum tax (AMT)). The bonds are expected to be insured by Financial Security Assurance Inc. whose insurer financial strength is rated 'AAA' by Fitch. The Rating Outlook is Stable.

The series 2006A bonds will price via negotiation or about Jan. 11, 2006 through a syndicate led by Merrill Lynch and UBS Financial Services, Inc. The bonds are being issued on parity with approximately $2.9 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 2006A bonds will be used, together with other authority funds, to refund all of the authority's outstanding airport system revenue commercial paper notes, series one (rated 'F1+' by Fitch), refund a portion of the authority's outstanding airport system revenue commercial paper notes, series two (rated 'F1+' by Fitch), finance the cost of certain capital construction program (CCP) projects, pay capitalized interest, fund a deposit to the debt service reserve fund, and pay bond issuance costs.

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.

Independence Air, IAD's second largest carrier enplaning approximately 21% of the market during the first 10 months of 2005, announced a voluntary suspension of service effective Jan. 5, 2006. In Fitch's view, the cessation of service by Independence may create near-term operating and financial pressures for MWAA as passenger throughput temporarily declines. However, given the strength of IAD's primary service area and the fact that all but four of the markets served by Independence Air are served by existing carriers at IAD, Fitch believes that a gradual transference of existing Independence Air passenger volumes to these other airlines combined with the financial conservatism of management in transacting with and planning for bankrupt and or liquidating carriers, should minimize the operating and fiscal pressures resulting from Independence Air's demise. Independence owes MWAA just under $1 million of prepetition debt.

The Chapter 11 bankruptcy status of several air carriers operating at both IAD and DCA, including UAL Corp., parent of United Airlines, the largest air carrier at IAD (50.8% of enplanements), and the continuing financial struggles facing US Airways, the largest carrier at DCA (38.2% of enplanements), which merged with America West upon it's exit from Chapter 11 bankruptcy protection during September 2005, remain ongoing credit concerns. Both airlines do, however, appear committed to maintaining sizable operations within the D.C. area and are current on all payments under their respective airline agreements.

Offsetting the moderate airline concentration risk is the strong origination and destination (O&D) profile of traffic at both IAD (67%) and DCA (87%), favorable demographic trends within the service areas of both airports, and an overall competitive cost and debt profile. At Dulles, enplanements are expected to increase for a second year by a strong 17%, to approximately 13.3 million, after increasing by 35%, during the previous year. Much of this increase again stemmed from the low-fare offerings of Independence Air and the retaliatory pricing and service tactics of competing carriers. National's traffic is expected to reach a record nine million enplanements during 2005, exceeding the peak of the previous year (approximately eight million). Future traffic growth at both facilities through 2014 is assumed to be much more moderate reflecting the conservatism of authority management.

MWAA consistently generates healthy financial results. During the first 11 months of 2005, the authority recorded an operating ratio of 44%, which is consistent with prior years. Debt service coverage is projected to equal a solid 1.7x for 2005, providing a cushion for bondholders above the 1.25 times (x) rate covenant. Airline-related costs are expected to rise as the authority adds approximately $769 million of new projects to the CCP and plans to issue approximately $2.3 billion of additional debt through 2011 to finance the program's completion. Though cost per enplaned passenger is expected to exceed $22 at Dulles and $12 at IAD, these metrics compare favorably to other similarly sized airports. Under a number of stress scenarios reviewed by Fitch, projected CPEs could be higher than currently anticipated. Importantly though, Fitch recognizes the extremely conservative assumptions underpinning the various scenarios and notes that the modular nature of the CCP allows for cancellation or deferral of projects if needed.

Recently, the authority submitted a proposal to purchase the Dulles Toll Road (DTR), an eight-lane tolled highway providing an alternate route to local, non-airport traffic near IAD. Under the proposal, the authority would assume responsibility for operation and maintenance of the DTR and for payment of the Commonwealth of Virginia's outstanding debt related to the road. Additionally, MWAA would assume responsibility for financing the commonwealth's share of constructing rail access to IAD. Fitch will continue to monitor developments regarding this proposal.

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