Fitch Rates Chicago O'Hare Airport's 3rd Lien Rev Bonds 'A'

November 11, 2003 12:13 PM US Eastern Timezone

Fitch Rates Chicago O'Hare Airport's 3rd Lien Rev Bonds 'A'

CHICAGO--(BUSINESS WIRE)--Nov. 11, 2003--Fitch Ratings assigns an 'A'
rating to the City of Chicago's approximately $146.8 million Chicago
O'Hare International Airport general airport revenue bonds, series D, E,
and F. The Rating Outlook is Negative.

The bonds are scheduled for negotiated sale during the week of Nov. 17
through a syndicate led by Citigroup. Proceeds of the bonds will refinance
a portion of the airport's outstanding 1993A first lien general airport
revenue bonds (GARBs) and 1993B second lien GARBs, as well as finance
elements of the O'Hare modernization program. The bonds are secured by the
net general revenues generated at O'Hare International Airport (O'Hare or
the airport) on a subordinate basis to the airport's outstanding first and
second lien GARBs. The city plans to insure the bonds through a monoline
insurance.

The ratings for Chicago O'Hare International Airport (O'Hare, or the
airport) reflect the airport's central role in the national air
transportation system, including major hubs operated by American Airlines
(American) and United Airlines (United); a strong local origination and
destination (O&D) market that complements the airlines' hubbing
operations; and management's proven track record of sound financial
operations.

Credit concerns include the weakened financial position of the airport's
two largest carriers; the airport's significant connecting traffic, which
increases exposure to airline scheduling decisions; and the potential for
substantial additional debt under the airport's extensive, though
flexible, capital program. The lower rating for the third lien bonds
reflects their subordinate payment position and comparatively weak legal
provisions, which include a sum sufficient rate covenant and additional
bonds test (ABT) from net general revenues and allocated passenger
facility charge (PFC) revenues. The long-term Rating Outlook for O'Hare
remains Negative due to the continued financial difficulties experienced
by the nation's airlines, particularly United and American, as well as the
rising fixed costs associated with the airport's capital program.

The strength of the national economy generated 1.7% annual growth in
enplanements at O'Hare from 1995-2000, when the airport served 35.7
million enplaned passengers. Enplanements declined an average annual rate
of 4% between 2000 and 2002, to 32.9 million, due to the aftermath of the
events of Sept. 11, 2001, the weakened state of the national economy, and
the financial difficulties encountered by the domestic airlines.

Through September 2003, the airport recorded a 4.7% increase in
enplanement over the similar period of 2002. The airport's consultant
projects that enplanements at O'Hare will increase at an average annual
rate of 2.9% through 2012 to 42.2 million enplanements, a level Fitch
Ratings believes is attainable based on the airport's past performance.

Both United and American operate major hubs at O'Hare, with United and its
regional affiliates accounting for 49.2% of total enplanements during
2002, while American and its regional affiliates represented 34.3%.
Reflecting the significant hubbing operations, connecting passengers
accounted for 56% of enplanements during 2001. The scale of hubbing
operations makes O'Hare vulnerable to scheduling changes by its leading
carriers, a particular concern based on the current financial difficulties
experienced by United and American. However, Chicago's large O&D market
and central location make it likely that other airlines would increase
their activity at O'Hare, to a certain extent, should either of the two
leading airlines significantly reduce its presence.

Reflecting the residual nature of the airport's operating agreements, debt
service coverage provided by net revenues approximates pledged covenants
at 1.28 times (x) first and second lien debt service and 1.12x total debt
service for the year-ended Dec. 31, 2002. The airport's consultant
projects debt service coverage to remain near these levels through 2012,
while the cost per enplaned passenger (CPE) rises to a peak of $13.27 in
2010, compared to an estimated $9.24 in 2003, before declining to $12.36
in 2012, a level that remains competitive with industry peers'. These cost
projections include debt service associated with the first segment of the
first phase of the O'Hare Modernization Program (OMP) and are likely to
increase as the city undertakes additional aspects of its capital plan.

The airport's extensive capital initiatives include a $1.4 billion (in
escalated dollars) five-year capital improvement program, for which a
portion of the financing has been identified, and the $6.6 billion (in
2001 dollars) OMP, which eventually will realign the airfield into a set
of six east-west runways and two crosswind runways upon its anticipated
completion in 2013.

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