In another blow to the city’s beleaguered airport, Standard & Poor’s rating service downgraded the municipal facility’s outstanding bonds from A- with a stable outlook to BBB+ with a stable outlook.
According to a press release from interim Aviation Director Dan Gallagher, S & P cited “ a downward enplanement trend at COS, particularly after the departure of Frontier Airlines during the second quarter of 2013; the airport’s proximity to Denver International Airport; and a lower calculated debt service ratio as factors that informed S&P’s decision. “
S&P also noted that the downgrade is consistent with the agency’s overall position regarding small hub, origin and destination airports “which have altogether faced decreased capacity as a result of airline capacity consolidation and weaker economic conditions.” S&P does not anticipate recovery across this sector in the near-term.
Despite the downgrade, Gallagher remains optimistic about the airport’s prospects. He noted that:
• Despite the loss of Frontier, COS’ incumbent airlines have been able to recapture some of Frontier’s traffic, as reflected by higher passenger levels on remaining flights.
• Airport officials continue to have positive discussions with existing carriers about recapturing lost markets.
• Alaska Airlines has identified growth potential in COS and will begin daily, non-stop flights in November 2013.
• Finally, the Colorado Springs Airport has faced competition from lower-than-average fares because of three competing, hubbing air carriers at Denver International Airport.
In a move to reduce costs and further stabilize the airport, Gallagher hopes to refinance existing bonds at a lower interest rate. Lowering the airport’s rating, even slightly, may increase the cost of refinancing.
According to City’s financial adviser, Public Financial Management Inc., “The Airport’s plan of finance is a balanced approach to reducing costs through utilizing both cash to reduce debt and refinancing outstanding bonds at lower interest rates. Additionally, the Airport is seeking a low-interest loan from the State Infrastructure Bank, which will further support the Airport’s stated goal of reducing costs to the airlines while efficiently financing the capital plan at below market rates.”