Fitch Affirms Denver Intl Airport Revs at 'A', Outlk to Stable from Neg

February 19, 2004 12:49 PM US Eastern Timezone 

Fitch Affs Denver Intl Airport Revs at 'A', Outlk to
Stable from Neg 

NEW YORK--(BUSINESS WIRE)--Feb. 19, 2004--Fitch
Ratings affirms the 'A' underlying rating on
approximately $4 billion City and County of Denver,
Colorado airport system revenue bonds. The rating
Outlook for Denver International Airport's (DEN) bonds
has been changed to Stable from Negative. 


The stable outlook reflects the diminished risk of
United Airlines (UA) substantially reducing or
restructuring its service at DEN since the airline
assumed the Airport Use and Facilities Lease
Agreement. By assuming the lease, the DEN lease
obligation becomes an administrative expense (claim)
should UAL (UA's parent corporation) fail to
successfully restructure in bankruptcy. Thus, airport
obligations (the 22 years remaining on the lease term)
will get paid ahead of all unsecured creditors. 

UA is the principal carrier serving DEN, and together
with its United Express partners accounted for 60% of
the service in 2003. The impact of the bankruptcy and
potential for significant service disruption at the
airport was considerable. However, Fitch now views the
likelihood that UAL will successfully restructure and
exit Chapter 11 as reasonably strong. Therefore, the
outlook has improved because the airline is recovering
and its commitment to DEN is stronger after affirming
the principal lease agreement. DEN is the first
airport where UA has assumed the principal use
agreement (including the various amendments), and UA's
actions illustrate the importance of the airport to
the airline's route structure. Fitch believes
management has positioned the airport well, in
relation to other UA-dominated hubs. 

Key elements of the stipulated order include, DEN's
obligation to construct a $40 million 38-gate regional
jet facility on concourse B, new ticket counters, a
taxiway and hangar drainage project, and pass through
UA's vibration payment. In addition to projects aimed
at assisting UA's development at DEN, Frontier
Airlines will benefit from the airport's development
of interim gates and expansion of concourse A West. In
exchange for UA assuming the lease and Frontier
expanding service, airport management agreed to $137
million of future projects and an $83 million
rates-and-charges cost reduction from 2004-2010.
Finally, the City will implement gate usage
requirements for all airlines and their regional
affiliates that lease preferential use gates at the
airport, establishing a four-turn threshold or minimum
on average per gate per day. If an airline fails to
meet the threshold for a calendar quarter without
excuse, airport management can reassign gates to
achieve the threshold. The utilization threshold could
lead to more efficient use of existing facilities. 

The 'A' rating reflects DEN's importance as a regional
transportation provider for the largest city in
Colorado, with a healthy diverse economy able to
support the adequate origination and destination
passenger levels, natural strategic East-West hub for
US traffic, and the recent growth of Frontier Airlines
presenting a viable low-fare alternative (fiscal 2003
market share of 13.5%). Furthermore, fiscal 2003's
total passengers increased 5.2% over the prior year
and preliminary financial statistics remain solid.
Offsetting credit issues remain UA's service dominance
at DEN and its continuing bankruptcy status. Also, the
airport's large debt load and correspondingly high
cost per enplaned passenger, estimated at $15.58 in
fiscal 2003, constrain the rating.

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