Ratings agency Standard&Poor's says ratings on Christchurch airport could be lowered if it failed to achieve adequate tariff increases from airlines.The warning is contained in a report published today on eight airports in this country and Australia -
Ratings agency Standard&Poor's says ratings on Christchurch airport could be lowered if it failed to achieve adequate tariff increases from airlines.
The warning is contained in a report published today on eight airports in this country and Australia -- Adelaide, Melbourne, Brisbane, Sydney, Perth, Auckland, Wellington and Christchurch.
S&P said after coping with weaker inbound tourism and reduced airline capacity during the past 15 to 18 months, most of the airports were facing fresh headwinds.
They were contending with higher funding costs and debt refinancing while reassessing the timing and scope of major capital works deferred during the downturn, the report said, although also noting Wellington airport had minimal upcoming debt maturities, reflecting a well-spread debt-maturity profile.
Despite the challenges, S&P did expect the airports to maintain ratings stability and a sound credit outlook in the short-term, aided by better-than-forecast passenger traffic in recent months, and a gradual recovery of the global airline and travel sectors.
S&P expected low-single-digit passenger growth during the next 12 to 18 months, while a return to the region's long-term growth trend of 4-5 percent may be a few years away.
Resilient traffic trends and a cautious approach to managing capital works had underpinned rating stability at the rated airports, with all now on stable outlook, the report said.
But S&P warned that the stable credit profile of the sector may be threatened if the financial practices of the airports weakened before confidence in the global economic outlook and international traffic trends was restored.
"Potential risks include any strategies that accelerate capital investments, use significant amounts of debt for capital projects, undertake investments without certainty on returns, or pay higher dividends or special dividends," the report said.
Some glimpses of that were seen with Christchurch airport's decision to go ahead with major capital works without an adequate agreement with airlines for cost recovery.
Another was Auckland airport's recent acquisition of a 24 percent stake in the tourism-dependent Cairns and Mackay airports, S&P said.
In general, the airports had typically not started capital works without adequate arrangements with airlines.
"Christchurch airport defied this trend by proceeding with a significant terminal expansion without an adequate cost-recovery arrangement or full funding in place," the report said.
S&P noted the risk of Christchurch airport proceeding without adequate cost recovery had been known for some time and was factored into the airport's A- rating.
Also the risks associated with funding were mitigated by the airport's ownership strength, with Christchurch City Council having a 75 percent stake.
But the report said: "If Christchurch airport fails to achieve adequate tariff increases, the ratings on the company could be lowered."
Protracted negotiations with airlines to achieve a significant increase in tariffs to support proposed aeronautical developments was an associated challenge for the airports, the report said.
