Deal Fails to Give Pittsburgh International Airport Upgraded Bond Rating

Deal Fails to Give Airport Upgraded Bond Rating

Friday, January 09, 2004
Pittsburgh Post Gazette, PA


US Airways' decision to sign a long-term lease for 10 gates at Pittsburgh 
International Airport while operating another 40 on a month-to-month basis has 
done nothing to ease the worries of one major bond rating agency.

Fitch Ratings announced yesterday that it would keep a negative rating watch in 
place as part of the Allegheny County Airport Authority's BBB rating on $676.2 
million in revenue bonds because of the continued uncertainty over the future 
of the US Airways hub at Pittsburgh.

The agency dropped the authority's bond rating from A minus to BBB on April 30 
of last year after US Airways canceled its airport leases, effective Jan. 5, 
2004, before emerging from bankruptcy last March. On Monday, US Airways 
re-signed the long-term lease for 10 gates -- down from 50 -- and retained the 
other 40 month to month.

James Gilliland, director of U.S. public finance for Fitch, said the agency did 
not consider the 10-gate commitment "enough for a stable outlook, but it's an 
improvement."

In its release, Fitch said the loss of the US Airways hub could pose "serious 
financial implications" for the other airlines operating under long-term leases 
at the airport. Because US Airways is such a dominant carrier in Pittsburgh, 
accounting for more than 80 percent of all traffic, the shutdown of the hub 
could dramatically increase per-passenger costs for other airlines -- Fitch 
estimated they could jump to more than $14.50, up from $10.01 currently.

Under the airport lease, other airlines would be responsible for picking up US 
Airways' share of operating and debt costs if it closed the hub. Peter 
Stettler, another Fitch director, said that could have grave ramifications for 
the airport.

He said the higher costs could force other airlines to raise ticket prices at 
an airport already criticized for high fares. That, in turn, could drive people 
to other airports to take advantage of lower fares, creating a downward spiral.

Pittsburghers have been known to drive to Cleveland to claim lower fares, 
particularly with low-cost carrier Southwest's strong presence there. 
Pittsburgh, Stettler said, "could become a non-competitive facility."

Airport Authority Executive Director Kent George questioned the accuracy of 
Stettler's assumptions. "History has proven that airport rates and charges have 
nothing to do with the establishment of ticket prices at a facility," he said.

George said he was happy the authority's bonds were not downgraded, but 
believed the rating should have been increased.

Moody's Investors Service also dropped the airport authority's bond rating from 
Baa1 to Baa2 last summer in response to the US Airways lease cancellation at 
Pittsburgh.



 

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