OREANDA-NEWS. Fitch Ratings has affirmed Spokane County, Washington's (the county) \\$9 million general airport revenue bonds (GARBs) series 2008 and 2010 at 'A+'. The GARBs are secured by net revenues of Spokane International Airport (the airport). The Rating Outlook is Stable.

RATING SUMMARY: The 'A+' rating reflects the airport's monopolistic position over an almost entirely original and destination (O&D) traffic base with low to moderate carrier diversification, a fully residual airline use and lease agreement (AUL), strong debt profile, and solid financial metrics. These strengths are partially offset by a small enplanement base, a somewhat weak regional economy, and the expectation of future debt issuances.

SECURITY
The bonds are payable by net revenues of the airport.

KEY RATING DRIVERS
Revenue Risk- Volume: Midrange
Monopolistic yet Limited Enplanement Base: The airport benefits from low to moderate carrier concentration and a monopolistic position over an enplanement base that is almost entirely composed of O&D traffic. However, the enplanement base is small at about 1.5 million and the region's somewhat weak economic profile renders the airport susceptible to heightened demand risk.

Revenue Risk- Price: Stronger
Residual AUL with Low CPE: Fitch views positively the airport's low cost per enplanement (CPE) and fully residual AUL, which expires at the end of fiscal 2015 but is anticipated by management to be renewed for at least two more years. Fitch's stronger assessment of the airport's price risk is contingent on continued maintenance of an AUL that provides a framework for recovering operational and capital costs that is at least moderately insulated from underlying traffic performance.

Infrastructure Development and Renewal: Moderate
Sizeable CIP, Debt Funding Yet to be Finalized: The airport's capital improvement plan (CIP), unchanged from the prior year, spans 20 years and its large \\$1.2 billion size is mitigated by substantial use of pay-as-you-go resources, grants, and passenger facility fees (PFCs). Although management expects a portion of the CIP to be paid from debt, the timing and size of any such issuance has not been determined.

Debt Structure: Stronger
Sound Debt Structure: All outstanding GARBs are fixed rate, fully amortize by 2018, and have cash-funded debt service reserve funds sized to the maximum allowed by the IRS.

Strong Financial Metrics: The airport benefits from a solid financial profile, exhibited by high unrestricted cash of \\$30 million (524 days cash on hand) and a strong 2014 debt service coverage ratio (DSCR) of 3.48x. Fitch positively views the airport's negative leverage, indicating that available cash exceeds outstanding debt.

Peers: The airport's closest peers include Boise and Louisville (both rated 'A+'/Outlook Stable). The airports share similar enplanement bases, carrier concentration, debt structures, and overall sound financial metrics. Although Spokane's leverage is lower, the metric could change over the intermediate term as the airport solidifies the scope of its debt issuance plans.

RATING SENSITIVITIES
Negative- Material weakening of the airport's cost recovery framework should the airport's AUL be materially and negatively modified from its current version, which expires later this year.

Negative- A very large debt issuance could lead to negative rating action, should it result in substantial and sustained weakening of the airport's financial metrics, CPE, or infrastructure renewal and development framework.

Positive: The airport's small enplanement base and weaker than average regional economic characteristics restrict the rating from higher levels.

SUMMARY OF CREDIT

Enplanements increased modestly in 2014 by 1.8% and are projected by management to rise 4% in 2015. Recent enplanement gains mark a turnaround compared with the six-year period ended 2013 over which time enplanements fell by a cumulative 16% in the wake of the housing-led recession. Management expects enplanements will continue to rise modestly, an outlook Fitch views as reasonable based on expectations of further economic expansion, new residential and commercial developments, increasing carrier capacity, and a rebound in business travel.

The airport provides a cost-competitive CPE of just \\$5.45, which supports its significant low cost carrier base. CPE would be somewhat lower at \\$5.23 if not for the addition of a fuel facility cost center that was added in 2015. Moving forward, CPE may rise at a brisker pace owing to a sizeable CIP and anticipated debt issuances, though it's difficult to quantify the ultimate effects as management has not solidified the timing or scope of future debt issuances. Fitch would view negatively a substantial and sustained CPE hike, leading to a demonstrable loss of competitiveness.

The airport's financial operations were strong in 2014 despite expenditures growing somewhat faster than revenues at 5% and 2.7%, respectively. The debt service coverage ratio (DSCR) equalled a solid 2.18x and liquidity remained robust at 524 days cash on hand. Based on year-to-date operations, management projects 2015 performance will be stronger still, with rising enplanements boosting operating revenues, and a 5.9% expenditure reduction boosting the DSCR to a robust 2.79x.

Fitch's base case forecast extends until 2018, the year of final GARB maturity, and it assumes modest 1% annual enplanement growth. Expenditures are assumed to grow by a high 6.6% annually, equal to the average growth over the past five years ending in 2014. Reflective of the residual nature of the AUL, the DSCR is held at a steady 2.69x, which is also equal to the five-year historical average. Under these assumptions, CPE falls to \\$4.16 in 2016 and rises thereafter to a high of \\$6.06 in 2018.

Fitch's rating case scenario includes a hypothetical recessionary scenario that reduces enplanements 10% in 2016 followed by 2% growth thereafter. Expenditures are assumed to fall 5% in 2016, acknowledging expenditure reductions implemented in the prior recession, followed by 4% growth thereafter. The DSCR is held steady as it was in the base case. Under the rating case scenario, CPE initially falls in 2016 to \\$4.97, but rises to a peak of \\$7.04 by 2018.

The airport is the second largest in Washington State (general obligation bonds rated 'AA+'/Outlook Stable), serving eastern Washington and northern Idaho. The airport is located six miles southwest of downtown Spokane and is recognized by the FAA as a small hub. The airport is governed by the Spokane Airport Board, whose members are appointed by Spokane County and the City of Spokane.