... in an effort to foster a discussion among airlines and airports regarding how the latter handle their finances. Officially titled “Credit Ratings and Cash Reserves: How They Influence the Borrowing Costs of Airports”, the white paper was prepared by Ricondo & Associates, Inc., with assistance from Piper Jaffray &Co. and Morgan Keegan & Co., Inc., at the request of the Airports Council International – North America’s Finance Committee
An executive summary released to the media explains that the request for the white paper stemmed from an airport/airline roundtable discussion at ACI-NA's 2009 Economic and Finance Conference regarding ways in which the two industries could work together to control airport costs. A debate ensued during one session with airlines regarding the importance of high credit ratings to airports in order to reduce borrowing costs and maintain access to the municipal bond market. Central to this debate is the different viewpoints of airports and airlines regarding the level of cash reserves and debt service coverage required to maintain an airport's credit rating, and whether achieving such high ratings places costs on the airlines that outweigh the benefits, says the summary.
According to the report, airlines question whether airports need to maintain what they believe to be in certain cases excess levels of cash and debt service coverage to support a particular rating. Airports respond that by maintaining higher levels of reserves, maintaining favorable credit ratings, and applying cash to a capital program, they achieve lower borrowing costs that benefit their airline tenants.
It’s a fascinating discussion and those wishing to view the white paper in its entirety should contact the association at www.aci-na.org. With inflation eating away at the $4.50 cap on passenger facility charges and with Congress apparently disinclined to boost that cap, along with the Administration’s call for less funding for the Airport Improvement Program, the subject of airport cash reserves and credit ratings heightens in importance.
It’s all about the money. It will be most helpful for airlines, airports, and the industry as a whole if Congress would get a long-term funding scheme in place … soon.
Thanks for reading. jfi