Auckland Airport rating upgraded on smaller capital spending programme

BUSINESSDESK: Auckland International Airport, the country's biggest gateway, has had its credit rating outlook upgraded to positive by rating agency Standard & Poor's due to a smaller-than-expected spending programme to cope with congestion at its domestic terminal.

The global rating agency affirmed the airport's A-/A-2 issuer credit ratings and says it could be lifted one notch in the coming year because of a less intensive short-term capital expenditure programme.

S&P expects the airport's debt to be about $100 million lower than previously forecast by 2015.

"We had assumed that a significant step-up in AIAL's capital expenditure would occur over the coming five years, driven by the construction for the new domestic terminal and, toward the end of our forecast, the start of the works for the second northern runway," credit analyst Thomas Jacquot says.

"As part of its consultation with the airlines regarding its proposed new tariffs, AIAL has instead decided to pursue a shorter-term, less capital-intensive solution concerning the congestion issues at the domestic terminal, while continuing its consultation regarding its longer-term new terminal facility plans." 

Auckland Airport spent some $83.1 million on capital works last year, and expects capital expenditure of between $100 million and $110 million in the current financial year, $66 million of which is on airside improvements.

Its rating faces some short-term uncertainty over the Commerce Commission's review of the existing regulatory environment and the positive outlook may be removed if the antitrust regulator does not keep the current light-handed regime.

The rating agency expects subdued passenger growth in the short-term, assuming compound annual growth rate of 2.6% in international passengers over the next three years and 1.3% for domestic passengers.

That compares to a 4.4% annual compound growth rate in international passengers over the past five years and 2.1%for domestic passengers.

Auckland Airport's shares rose 0.4% to $2.635 today and have gained 5.2% this year.