OREANDA-NEWS. August 31, 2015. Fitch Ratings has affirmed Albany County Airport Authority's outstanding \\$103 million airport revenue bonds at 'A-'. The Rating Outlook is Stable.

The airport's rating reflects a relatively small but predominantly origination/destination (O&D) market within a capital city. The enplanement base has demonstrated some weakness over the past decade, and while stabilizing, it remains susceptible to volatility and broader economic conditions. Still, airport finances remain steady as operating cash-flows are well-diversified with non-airline revenue. The airport's cost per enplanement (CPE), leverage and liquidity are projected to remain largely stable and are comparable for its peer group.

KEY RATING DRIVERS

Revenue Risk - Volume: Weaker
Capital-Region Airport; Volatile Traffic: The airport is the primary air service provider for the New York state capital region. After nearly a decade of steady traffic declines, enplanements increased 1.3% in fiscal 2014 and this growth has continued in to 2015, as enplanements are up 5% through July. Southwest Airlines Co. (Southwest, rated 'BBB'/Positive Outlook by Fitch) maintains a stable, majority presence at the airport with 45% market share.

Revenue Risk - Price: Midrange
Adequate Cost Recovery: The airline use and lease agreement (AUL) currently expires in December 2015 and utilizes a hybrid rate-making methodology that provides for favorable cost recovery provisions. A new agreement, currently under negotiations, is expected to contain similar terms and should allow for CPE levels to remain stable in the -\\$7 range under normal traffic performance.

Infrastructure Renewal & Development: Stronger
Manageable Capital Program: The airport is in its first year of a manageably-sized, five year \\$121 million capital improvement program (CIP). A moderate amount of additional debt may be issued in 2019 to fund a parking garage expansion, if deemed necessary.

Debt Structure: Stronger
Conservative Debt Structure: All outstanding bonds are fixed rate, fully amortizing. Debt service payments are flat-to-declining through maturity in 2035, supported by adequate covenants and cash-funded reserve accounts.

Stable Financial Metrics: The airport's debt service coverage, 1.36x in fiscal 2014, is forecasted to remain in the 1.4x level for the foreseeable future. Leverage was 6.4x net debt-to-cash flow available for debt service (CFADS) in fiscal 2014 but should evolve downward over time. Airport liquidity is also sound at 364 days cash on hand (DCOH).

Peer Group: Amongst its northeast peers in the 'A'-category, such as Richmond, Virginia ('A-'/Outlook Stable) and Hartford, Connecticut ('A'/Outlook Stable), Albany displays higher leverage and lower debt service coverage. However, Hartford's CPE is in the \\$9 range, while Richmond's CPE remains just under \\$6.

RATING SENSITIVITIES

Negative - Traffic Performance: Sustained, measurable contraction, or elevated volatility, in passenger traffic that pressure the airport's ability to generate non-aviation revenue;

Negative - Financial Metrics: Material increases in either leverage or CPE levels as compared to peers;

Positive - The airport's size and traffic profile, coupled with vulnerabilities to economic conditions, currently restrict the likelihood of a higher rating at this time.

CREDIT UPDATE

The airport's traffic base has a history of volatility, reflected by a five year compounded annual growth rate of -1.8% through fiscal 2014. Recently, however, enplanements have demonstrated some strength, increasing 1.3% to 1.2 million in fiscal 2014 and further continuing in to 2015, up 5% through July. This development is noteworthy as the airport's enplanement base had previously experienced a steadily declining trend since 2005. Fitch forecasts traffic levels to broadly remain near this base, moderately growing 1.2% annually through 2019.

New service routes at the airport are expected to support the current enplanement base. Southwest added a Saturday flight to Denver in June 2015 and the airline has plans for year-around service to Las Vegas as well as plans to begin seasonal, daily service to Fort Meyers in March 2016. Additionally, JetBlue will start service at Albany in December 2015, initially providing service to Orlando and Fort Lauderdale.

Operating revenue in fiscal 2014 increased 3.3%, to \\$43.6 million, due to greater parking, concession and fixed based operations (FBO) revenue. Non-airline revenue, which represents 71% of operating revenue, increased 6.3% in fiscal 2014. Management has taken a number of actions to enhance non-airline revenue in recent years, including raising long-term parking rates and entering in to new concession agreements that provide greater minimum annual guarantees. Fitch foresees moderate stability in non-airline revenue over the five-year forecast period led by parking revenue, which is currently up 12% in fiscal 2015.

Prudent expense management has been demonstrated by management in recent years. Operating expenses increased an inflationary 2.1%, to \\$32.3 million in 2014; however, they are currently tracking to a 5% decrease in fiscal 2015, due to lower fuel expense. The 2014 increase was due to higher FBO expenses for the purchase of fuel for resale and maintenance expenses for grounds and vehicles. Given an expectation of only moderate growth going forward, continued expense management will be monitored.

Fitch's five year base case assumes 1.2% annual traffic growth (2014-2019) and inflationary expense growth, and results in coverage above the 1.40x range and CPE below \\$7. Fitch's rating case moderately stresses enplanements in fiscal 2016 with moderate recovery, and results in a minimum coverage of 1.26x while CPE reaches \\$7.30. In both cases leverage evolves to the 3x level by fiscal 2019.

SECURITY

The bonds are secured by the net revenue generated by the airport. PFCs are excluded from the definition of revenue but may be pledged as revenue pursuant to the master bond resolution in order to either pay debt service or reduce debt service requirements.