If Orange County supervisors and John Wayne Airport were grandparents, they’d be clipping coupons and converting rolls of pennies at the bank.
The Board of Supervisors voted on May 23 to redeem $27.2 million in airport revenue bonds, exactly one week after Fitch Ratings affirmed an AA- rating on the bond offering that paper is part of.
The redemption is scheduled for July 1 and projected to save $13.6 million in interest costs.
OC and JWA issued $233.1 million in bonds in July 2009 to finance new airport facilities and improvements.
The total outstanding as of last June 30, the end of OC’s fiscal year, was about $197 million; two weeks ago, when San Francisco-based Fitch affirmed its rating with a stable outlook, it was about $189 million.
The bonds mature in July 2034. About $41 million is eligible for call on July 1, when the county pays the $27.2 million.
OC will get $22.2 million of it from an airport debt service fund and $5 million from an airport construction fund to redeem the bonds.
Sky Cap
OC Auditor-Controller Eric Woolery said prepayment will “take some of the pressure off” expenses as the airport hits maximum annual passenger, or MAP, limits.
JWA greeted 10.5 million passengers last year. It can’t have more than 10.8 million annually through 2020 under a settlement agreement among the airport, the county and citizens groups.
Fitch’s cash-flow scenario for JWA sets passenger growth at 1% in each of the next two years and at zero growth in the two after that. Its ratings scenario is leaner, with passenger count decreases of 5% this fiscal year and 8% next year.
“They’ve seen tremendous growth in recent years but have to apply the brakes” due to caps, said Scott Monroe, the report’s lead analyst and a director with Fitch’s Transportation and Infrastructure Group.
Woolery said that, “Even with curfews and noise abatement, growth has been phenomenal.”
JWA’s passenger count through the first 10 months of its fiscal year was up 0.65%.
Good Mix
The MAP cap rises to 11.8 million annually from 2021 to 2026, and Fitch’s overall picture of the airport is positive.
It cited JWA’s “diversified carrier mix” and its position as OC’s only commercial airport and the second largest in the region after Los Angeles International Airport.
Southwest Airlines Co.’s passenger share was 46% in the airport’s most recent fiscal year, while American Airlines Inc. represented about 16%, United Airlines Inc. about 13%, Alaska Airlines 10%, Delta Air Lines Inc. about 7%, and several others less than 3% apiece, Fitch said.
Southwest’s share is dropping and “being picked up by other airlines,” Monroe said. “We generally view more diversified mix as ‘credit-positive.’”
Airport revenue is also mixed and shows modest growth projections, Fitch said. About 35% of revenue came from airlines and the rest from other sources, including parking, rental cars and concessions.
Per Diem
Fitch’s analysis suggests an airport flush with cash.
“Their financial metrics [are] very strong,” Monroe said. “There can be a few years of ‘flat’ when you have that.”
The ratings agency praised the airport’s “steady financial performance,” with operating revenue up more than 6% to $132 million in its last fiscal year due to passenger growth approaching 8% in the same period.
Operating expenses held steady at $83 million, for cash flow of about $49 million—an increase of 19%, Fitch said.
Fixed-rate debt is $17.7 million through 2030—all but $2 million of which pays the bonds’ annual principal and interest—and drops to about $6.5 million in the following decade, with “no new … borrowing plans,” Fitch said.
Its report also shows 1,205 “days of cash on hand”—up from about 800 when it conducted its annual review of the bonds last May, and more than twice as much as JWA’s own 500-day goal.
The agency takes the prepayment as evidence of JWA’s “solid financial position.”
Monroe said bond issuers “do not typically prepay their debt.”
