DALLAS - Phoenix Sky Harbor International Airport remains vulnerable to reduced service levels after the merger of its primary carrier US Airways with American Airlines, but the outlook on its AA-minus credit remains stable, according to Standard & Poor's.
The combined carriers operating as American Airlines enplaned 52% of Sky Harbor's market in fiscal 2014.
"Enplanement growth for the first six months of fiscal 2015 has been strong at 5%," S&P analyst Mary Ellen Wriedt noted. "The airport is projecting future enplanements to grow at a compound annual growth rate of 1.5% for fiscal 2015 through fiscal 2022 based on the historical trend in enplanements. We consider this forecast to be reasonable."
While affirming the junior and senior-lien debt for the airport issued by the Phoenix Civic Improvement Corp., S&P upgraded the corporation's 2004 rental car facility taxable revenue bonds to A from A-minus.
"The upgrade is due to consistently good debt service coverage levels and a significant fund balance," Wriedt said.
The city has about $520 million of senior-lien and $672 million of junior-lien debt outstanding. The junior-lien covenant that allows the city to offset debt service with other available funds is a credit weakness, Wriedt said.
In 2013, Sky Harbor ranked as the 11th-largest U.S. airport in total passengers according to Airports Council International. Enplanements grew 3.2% from fiscal years 1999 to 2007, then began declining in 2008. Enplanements stabilized and were up 1% in fiscal 2010, 3% in fiscal 2011, and 3% in fiscal 2012 before falling slightly in fiscal 2013 by 0.2%. Enplanements grew 1.4% in fiscal 2014 to a total of 20.5 million, according to S&P.
In October, the Phoenix City Council approved a $103 million construction contract to begin the renovation Sky Harbor's Terminal 3. The phased modernization of the terminal is expected to cost $590 million, with completion anticipated in 2020, officials said.
The city issued $200 million of commercial paper for the airport through its Phoenix Civic Improvement Corp. on Oct. 1. The notes were backed by letters of credit from Bank of America and Barclays Bank. The city does not anticipate issuing long-term bonds until 2016.
