US airports and terminal projects resilient to short-term flight cuts

Flight reductions pursuant to Federal Aviation Administration (FAA) directives amid the federal government shutdown will not negatively affect the credit quality of rated U.S. airports or single terminal projects financed through public private partnerships, Fitch Ratings says.

An FAA emergency order requires airlines to make cuts to flight operations in response to air traffic control staffing challenges during the government shutdown. The order affects 40 major airports, mostly leading hub facilities. Airlines must gradually cut scheduled flights, reaching a total reduction of 10% as soon as Nov. 14, and maintain reduced operations until the FAA cancels the order.

U.S. airports concentrate heavily on domestic flights to serve overall passenger demand. Based on delays and cancellations so far, domestic flights face higher risk from the required cutbacks than international flights. Airport sector financials are well anchored because airline agreements provide for cost recovery via strong rate-setting mechanisms. Airports and terminal projects also maintain ample retained liquidity to cover short-term disruptions.

Even if the shutdown is resolved in a timely manner, fully staffing air traffic control centers and security operations served by federal agencies will remain a longer-term systemic challenge.

Fitch does not expect negative rating actions to airport terminal project debt at New York LaGuardia (Terminal B) and JFK International (Terminals 1 and 4) airports, which are both financed and operated under public-private partnerships. While operational disruption will likely linger beyond the government shutdown, Fitch believes the fundamental strengths of the New York market are broadly supportive of flight volumes.