S&P Global: Winnipeg Airports Authority Inc. ratings affirmed at ‘A+’; outlook remains stable

WAA's total debt outstanding was about C$625 million at year-end 2024. All debt is secured by assignment of revenue and related accounts receivable, a security interest in the debt service reserve and certain accounts of the authority, and an unregistered mortgage of the authority's leasehold interest in Winnipeg International Airport (YWG).

The stable outlook reflects our view that despite some geopolitical headwinds that could dampen demand for air travel, passenger traffic will support WAA's financial performance in the next two years. We expect that debt service coverage (DSC) will remain close to 2x over the outlook horizon and that the authority's debt burden will fall below 7x EBIDA. We also expect cash levels will weaken temporarily to fund WAA's capital plan but remain overall healthy. We do not expect any change to our assessment of a moderate likelihood that the Canadian government would provide extraordinary support to the authority in the event of financial distress during the outlook horizon.

We could take a negative rating action in the next two years if a sustained, material decrease in demand for air travel or a significant increase beyond expectations in the authority's capital plan led DSC to fall below 1.25x or debt to EBIDA to rise above 10x.

We could take a positive rating action on WAA if rapid passenger growth supported significant and sustainable improvement in EBIDA such that DSC rose above 3x, or the authority's debt burden fell below 5x EBIDA. However, we view this scenario as unlikely over the next two years.

The ratings reflect WAA's stand-alone credit profile (SACP), which we assess at 'a', and our opinion of a moderate likelihood that the Canadian government would provide extraordinary support in the event of financial distress, resulting in a one-notch uplift to the rating above the SACP. The SACP reflects our opinion of the authority's strong enterprise risk and financial risk profiles.

Growth opportunities, particularly across the Canada-U.S. border, have become somewhat murkier in the face of geopolitical tensions and macroeconomic headwinds. Despite an anticipated reduction in appetite for transborder travel in the medium term, we expect enplanement growth at YWG will remain positive in the next two years, driven primarily by demand for domestic and other international travel. This will allow the authority to maintain stable DSC and strong liquidity and reduce its debt burden even as it embarks on more expansive capital plans.

Key credit strengths are WAA's:

• Strong market position, as the authority runs the largest international airport in central Canada;
• Experienced management team that reacts prudently to difficult market conditions; and
• Stable EBIDA generation that results in robust financial metrics.

Key credit weaknesses are:

• Uncertainty from macroeconomic and geopolitical trends that could soften demand for travel, specifically transborder traffic; and
• Similar to that of Canadian peers, WAA's liquidity incorporates reliance on available lines of credit.

WAA is a federally incorporated, nonshare capital corporation exempt from provincial and federal income taxes. The authority signed a 60-year ground lease with Transport Canada effective Jan. 1, 1997, that entitles it to manage, operate, and invest in YWG, and has exercised the option to extend the lease for 20 more years.

In accordance with our criteria for rating government-related entities, our view of WAA's moderate likelihood of extraordinary government support reflects our assessment of the authority's important role for Canada and its limited link with the federal government. WAA operates as an independent, nonshare capital corporation that administers a key, safety-intensive, and publicly visible infrastructure service to residents in central Canada. As a result, we see its role as important. The federal government does not interfere in the authority's day-to-day operations, nor does it play what we would consider an active role in shaping WAA's long-term business or capital strategies. In addition, it has provided little in the way of credit support to Canadian airport authorities (CAAs) historically. Accordingly, we view the authority's link with the federal government as limited.

Enterprise risk

Our assessment of WAA's enterprise risk profile considers its service area economic fundamentals, market position, and management and governance. Our assessment also considers industry risk, which we view as low compared with that of other industries and sectors.

We consider WAA's service area economic fundamentals as extremely strong. The service area includes Manitoba's capital, Winnipeg, and the Winnipeg census metropolitan area. We believe that Winnipeg's well-diversified economy offers a relatively high degree of protection from external shocks. Financial services, manufacturing, retail trade, and the public sector are the foundations of the local economy. WAA's catchment area includes the rest of Manitoba because it operates the only major airport in the province, which has a population of about 1.5 million and GDP per capita of more than US$54,000. We believe this is in line with the national level, as Manitoba's unemployment and population growth rates are typically similar to those of the nation and the provincial economy is sufficiently broad and diverse.

WAA's strong market position reflects the authority's importance to the local market, as well as its ability to set rates to meet financial requirements. In 2024, YWG recorded almost 4.3 million total passengers, as previous constrictions on the industry caused by supply chain and pilot shortages have unwound. However, considering the anticipated geopolitical and macroeconomic uncertainty through 2025 and beyond, we expect demand for transborder travel will diminish somewhat, affecting passenger growth in this segment. However, this softening should be somewhat offset by an anticipated increase in demand for domestic travel, as well as an uptick in international flights. YWG has already seen the arrival of a new WestJet route to St. John's, Nfld., and the authority expects to see further growth among domestic routes in particular. Therefore, we expect passenger numbers will increase steadily, reaching almost 5 million passengers by 2027. We expect this would also result in additional capital expenditures outside our outlook horizon as the authority seeks to address capacity constraints brought on by this growth.

Modest exposure to competition supports our strong market position assessment. As do other rated CAAs, WAA has a regional monopoly on airport services in Winnipeg and the associated catchment area. The federal government has agreed not to build another major international airport within 75 kilometers, provided the authority continues to meet local air travel needs. Although the authority is exposed to potential cash flow interruption stemming from airline concentration, we believe its high domestic-based, origin and destination (O&D) passenger composition, and strong service area would allow for substitution should an airline become insolvent, as demonstrated in 2024 when low-cost carriers Lynx Air and Canada Jetlines ceased operations.

We view WAA's management and governance as very strong, reflecting our assessment of its strategic positioning, risk management and financial management, and organizational effectiveness. We consider the authority's governance structure credit neutral. We believe the management team has considerable expertise and experience, with a track record of consistently meeting the operational and financial goals it sets out. Management has adjusted rates, costs, and capital expenditures in its short- and long-term plans to reflect realized growth and monitors performance against its budgets. Similarly, we believe that management demonstrates the ability to react quickly in a difficult operating environment, such as adjusting operating and capital spending during the pandemic. Management has policies and strategies in place to mitigate key risks, including debt management, cash and investment management, and a suite of insurance policies. Therefore, we expect the authority will continue to react nimbly to the fluid operating environment in the face of macroeconomic pressures.

Financial risk

Our assessment of WAA's financial risk profile considers pro forma 2027 figures for financial performance, debt and liabilities capacity, and liquidity and financial flexibility. Our assessment also considers the authority's financial policies, which we view as credit neutral.

WAA's financial performance is strong. We expect that despite softened demand for transborder flights and the threat of macroeconomic headwinds, revenue generation will continue apace, driven by the significant number of O&D passengers. Revenue growth will be supported by regular, ongoing increases in aeronautical fees and a steady C$38 airport improvement fee. Therefore, we expect that the authority will generate DSC of 2.1x by 2027.

Given steady growth passenger volumes that drive growth in EBIDA over our forecast horizon, we expect that our assessment of the authority's debt burden will remain very strong. WAA has no plans to issue debt through 2027, which will lead its total debt burden (including its subsidiary guarantee) to represent just below 7x EBIDA by 2027. Similarly, we expect that declining debt levels and rising enplanements will contribute to debt per EPAX of C$249 by 2027.

WAA guarantees the operational performance of its wholly owned subsidiary, Nunavut Airport Services Ltd., which provides airport operations, maintenance services, and lifecycle rehabilitation to Iqaluit International Airport until Dec. 31, 2047. The total subsidiary guarantee is for a maximum of C$18.8 million and is partially secured by a letter of credit of C$4.9 million.

We assess the authority's liquidity and financial flexibility as strong. Unrestricted days' cash on hand and available liquidity to debt will remain largely stable through the outlook horizon, representing approximately 464 days and 22%, respectively. WAA is undertaking several capital projects for maintenance and expansion, which we expect it will fund using cash reserves and, to a smaller extent, grants from the federal government. These projects include the Multi-Tenant Cargo Facility, the West Side development, and its Terminal Optimization, among others. In addition to cash and reserves, the authority's liquidity position is bolstered by a C$150 million senior credit facility, upon which WAA has no plans to draw. We expect the authority will remain in good standing with domestic financial institutions and capital market investors, and will be in compliance with all covenants during the outlook horizon.