Fitch Ratings has affirmed the 'A' rating on
The authority has
RATING ACTIONS
Entity / Debt
Rating
Prior
LT
A
Affirmed
A
LT
A
Affirmed
A
Page
of 1
VIEW ADDITIONAL RATING DETAILS
RATING RATIONALE
The 'A' rating reflects WCAA's continued favorable operating and financial long-term profile anchored by its central geographic location, demonstrated essentiality to
In Fitch's view, the airport's debt service coverage ratio and leverage should continue to remain stable, while airline cost metrics return to lower levels as
KEY RATING DRIVERS
Revenue Risk - Volume - High Midrange
Fitch has revised its assessment of Revenue Risk (Volume) to 'High Midrange' from 'Midrange' following the publication of its Transportation Infrastructure Rating Criteria, which assesses volume risk on a five-point scale.
Dependence on
The airport enjoys limited competition within the metropolitan area, which provides the airport with a catchment population of around six million and a sizable overall enplanement base that exceeded 18 million pre-pandemic. DTW is heavily reliant on
Revenue Risk - Price - Stronger
Strong Cost Recovery Structure
Airline use and lease agreements are 100% residual, with signatory airlines committed to cover all airport costs until expiration of the agreements in 2032. Cost per enplanement (CPE) jumped to
Infrastructure Dev. & Renewal - Stronger
Modest Capital Needs
The airport comprises of two terminals, both of which are less than 25 years old. The airport's upcoming investment plans are primarily focused on airfield work, but also include power plant lines, parking deck and parking lot rehabilitation and repairs and other airport facility projections. The airport has considerable flexibility in timing for implementation for their well-defined long-term capital planning needs. The FY 2023-2027 capital program is manageably sized at
Debt Structure - Senior - Stronger
Debt Structure - Subordinated - Midrange
The senior debt structure assessment reflects the airport's reduction in unhedged variable rate debt in recent years. WCAA employs a two-lien debt structure, with 94% outstanding at the senior lien level. WCAA's division of debt is not expected to materially change even with future borrowings. Around 89% of WCAA's
Financial Profile
WCAA's financial performance has been stable in recent years as it has been able to pass along costs to carriers through residual airline agreements. Current overall leverage is relatively high at 8.2x, but is expected to decline over the next five years to under 6.6x in Fitch's rating case. Unrestricted reserves sit at 230 days cash on hand, while FY 2021 indenture-based debt service coverage ratio (DSCR) is 1.4x on the senior lien and 1.3x on the junior lien. Excluding the benefit of a sizable revenue fund balance, the Fitch-calculated DSCR is 1.13x on the senior lien and 1.06x on the junior lien.
As a residual Airport, should economic conditions create a reduction in revenue resulting in a deficit between revenues and expenses, the Authority has the ability to increase rates charged to all Airlines up to the amount of the deficit. Conversely, should revenues exceed expenses, the excess is returned to the Airlines, justifying the 'A' rating.
PEER GROUP
WCAA's peers include
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A marked shift to the traffic base influenced largely by
Increase in airport borrowings and/or operating costs resulting in higher leverage levels sustained above 10x in Fitch's rating case.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Rating case leverage falling below 7x on a sustained basis, including future borrowings for capital needs.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CREDIT UPDATE
Through
With 74% of enplanements,
The proposed 2023-2027 CIP totals
FINANCIAL ANALYSIS
Due to a favorable increase in non-airline revenues, airline revenues YTD through October totaled
Operating expenses YTD 2022 through October are 9.7% higher compared with 2021 at
The authority is strategically using federal grants to offset a portion of the increases to terminal rates and the activity fee given the residual airline agreements. In FY 2020, the airport received
Total leverage in 2021 was 8.2x and is expected to decline under Fitch's cases. 2021 indenture-based DSCR was 1.4x on the senior lien and 1.3x on all debt. Fitch figures were 1.13x and 1.06x, respectively, which reflects Fitch's exclusion of carryover revenue fund balance. As a residual airport, DTW has a senior-basis 'floor' of no less than 1.25x on an indenture basis following all required deposits, but must make an annual settlement to the airlines in the event it exceeds this figure. Cost per enplanement was
Fitch Cases
Fitch has developed two scenarios that serve as the basis for this review. The cases are labeled as rating case and the downside case given that WCAA has recovered to just 77% of enplanements from FY 2019 levels. Fitch includes future federal funding in FY 2022 through 2025 in projected nonairline revenues. Due to the residual nature of the use and lease agreement, DSCR is the same annually for both the rating and downside cases.
Fitch's rating case assumes, relative to fiscal 2019, a 77% enplanement recovery in 2022 followed by further recovery to 85% in 2023, and 100% in fiscal 2024. The case further assumes additional borrowing of
Under this scenario, Fitch-calculated senior coverage averages 1.3x (1.5x on an indenture basis) and all-in coverage averages 1.2x (1.4x on an indenture basis). All-in leverage under the rating case peaks at 7.1x in fiscal 2023 but falls to 5.7x by the end of the forecast period. Given projected increases in airline revenue, projected CPE increases to over
Fitch's downside case considers a slower pace of enplanement recovery, reaching fiscal 2019 levels in 2025. Similar to the rating case, leverage under this scenario rises to approximately 7.1x in FY 2023 before delevering to 5.7x in 2026. Senior coverage averages 1.3x (1.5x on an indenture basis) and all-in coverage averages 1.2x (1.4x on an indenture basis). Given projected increases in airline revenue, projected CPE increases to over
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
(C) 2023 Electronic News Publishing, source