Fitch affirms Massport’s BOSFUEL Rev bonds at A+

RATING RATIONALE

The rating reflects the franchise strength of Massport's Boston Logan (BOS) airport (Massport consolidated rating AA/Stable) and the successful track-record of more than 20 years of the BOSFUEL consortium, validating its role as the sole provider of essential fuel storage and distribution services for all air carriers operating at Logan Airport.

Fitch expects that member cost-per-gallon will remain low relative to the cost of jet fuel, with efficiencies of the BOSFUEL business model providing carriers the most cost-effective provision of fuel at BOS. A modest and stabilized long-term project cost profile further supports the BOSFUEL consortium's business model.

KEY RATING DRIVERS

Revenue Risk - Volume - Stronger

Essential Service, Limited Concentration

Historically, Logan Airport has experienced consistent positive performance in passenger traffic growth and fuel volume utilization, with an expanding number of domestic and foreign-flag carriers. Fuel usage concentration remains modest, with the leading carrier, Delta, representing 25% of the market share for 2024. The underlying BOSFUEL fuel lease and interline agreement obliges all airport carriers to use BOSFUEL's fuel storage and distribution facilities, thus creating no alternative for fueling aircraft operating at the airport.

Revenue Risk - Price - Stronger

Rate Flexibility with Step-Up Provisions

BOSFUEL's underlying agreements provide for full recovery of costs through its member airlines. In the event of declining fuel consumption, carrier withdrawal, or delinquency, BOSFUEL has the authority and has implemented a billing schedule to charge carriers fuel rates that cover operating expenses and debt service at a sum-sufficient level. Carriers are separately responsible for fuel supply, thus insulating BOSFUEL from fluctuations in fuel prices. BOSFUEL services have historically represented a very low component of the overall cost of fuel for Logan Airport's carriers.

Infrastructure Dev. & Renewal - Midrange

Adequate Facilities and Access to Capital

BOSFUEL's 2019 debt issuance supported the funding needed to expand its fuel storage and distribution assets to meet current and projected demand as growth continues at BOS. The 2019 project included a fifth fuel storage tank and reconfigures the pipeline on-airport as Massport reconfigures/expanded gates to accommodate air passenger growth. This project is still under construction, and the estimated cost to complete has exceeded the initial budgeted amount of $31.5 million by approximately $19 million.

BOSFUEL is currently in the process of deciding the most appropriate means to fund this additional cost. Minor capital projects at BOSFUEL have historically been funded by special assessments to member airlines, with subsequent reimbursement from BOSFUEL debt issuance. This practice could continue in the future, and considering the lack of cash flow generated liquidity dedicated to lifecycle capital funding, this assessment remains constrained at Midrange.

Debt Structure - Midrange

Limited Pledge, Modest Reserves

BOSFUEL's debt structure is conservative, with fully amortizing, fixed-rate senior debt over a 30-year tenor. A cash flow sufficient rate covenant, coupled with the absence of a robust coverage-based additional bonds test (ABT), are considered weaker structural features, which are mitigated by terms within the fuel lease and interline agreements. Reserves are modest and provided through airline reserve deposits covering two months of BOSFUEL costs. The debt service reserve fund, sized at maximum annual debt service (MADS), is cash-funded.

Financial Profile

Revenues are sourced from BOSFUEL-member airlines at sum-sufficient levels to cover all operating expenses and debt service obligations. BOSFUEL collected $29.9 million in member revenues in fiscal 2023 for debt service and operations and maintenance (O&M), resulting in a member cost of 4.62 cents per gallon (excluding T&P, and prior to credits from non-member airlines) in fiscal 2023, down from 4.86 cents in fiscal 2022.

Preliminary fiscal 2024 results show this number decreasing slightly to 4.61 cents. Liquidity is narrow but adequate, with member reserve deposits of $5.5 million at Dec. 31, 2023, comprising around one-fifth of total member revenues. BOSFUEL's long track record of successful operations, along with protections in the interline agreement, including step-up provisions (never called upon before, despite some history of airline bankruptcies), mitigates the narrow revenue stream.

PEER GROUP

Fitch does not publicly rate any other similar fuel consortium projects. Fitch views BOSFUEL's rating as closely linked with Massport (AA/Stable) and also compares the relative risks of BOSFUEL with Massport's dedicated car rental facility bonds (CONRAC project; A+/Stable). BOSFUEL is more insulated from volume risk given its cost recovery framework and sole service provider role at the airport.

Conversely, the CONRAC project competes with other forms of ground transportation, and rental car transactions have not benefited as much from the robust growth in passenger volumes at Massport. Both the CONRAC and BOSFUEL benefit from strong pricing frameworks, including full rate-making flexibility and low elasticity of demand. Overall, BOSFUEL's 'A+' rating is well-positioned relative to other Massport credits.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Carrier defaults or delinquencies resulting in volatility in the profile of fuel consortium membership;

--Material and persistent degradation of aircraft operations at BOS that adversely affects fuel demand, leading to an upward shift in BOSFUEL's member cost profile.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--The rating is limited to the 'A' category given the narrowness of the pledged revenue stream and the limited cushion provided by the sum-sufficient cost recovery framework.

SECURITY

Massport serves as a conduit debt issuer for the debt to finance the capital improvements described above. The bonds are issued and secured under a Trust Indenture between Massport and the Trustee. BOSFUEL has agreed, pursuant to the lease agreement with Massport, to make rental payments directly to the Trustee in an amount sufficient to pay all debt service on the bonds. BOSFUEL has also unconditionally and irrevocably guaranteed the full and prompt payment of debt service on the bonds to the Trustee by executing a Guaranty Agreement.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit