Waiving airport fees could hurt bond rating

By Johnny Brannon
Advertiser Staff Writer

A push by DFS Hawai'i and other airport concessionaires to waive millions of dollars in contract obligations could damage an already fragile airport credit rating, according to a major international bond rating service.

"If we do see newly executed contract fees waived, we'll take another look at cash flow and take a strong look at the rating, but we would not consider it positive," said Fitch IBCA associate director Jim Gilliland.

Fitch yesterday reaffirmed its "A" rating for $837 million in outstanding airport revenue bonds, but changed its long-term rating outlook from "Stable" to "Negative" because the state suspended airline landing fees following the Sept. 11 terrorist attacks.

Gov. Ben Cayetano waived the fees in response to a steep decline in airline passengers and income after the attacks, and to help ensure that airlines continue delivering the thousands of visitors the state's economy depends on.

But his action choked off an important source of airport revenue, and giving a break to airport concessionaires could have a much bigger fiscal impact. If the bond rating is downgraded as a result, the state could face higher interest payments on its bonds.

DFS Hawai'i, which holds the most lucrative airport concessions, suffered a sharp sales decline since the attacks and is lobbying the state to suspend contract obligations agreed to in January. Instead of paying a minimum of $60 million a year for exclusive rights to sell untaxed imported luxury items in Hawai'i, the company wants to base future payments on a percentage of its sales.

A bill pending in the legislature would allow Cayetano to declare an economic emergency and modify contracts and leases for six months. So far, airport concessionaires are the only businesses to contact the governor directly about such relief, his press secretary said.

Landing fees provided $32 million in airport revenues in the last fiscal year, while concession fees were $181 million of the $332 million total. Cayetano said he is carefully weighing airport decisions in light of their impact on the state's economy as a whole.

"Airports across the nation are facing financial uncertainties, but Hawai'i is in a lot better position because of our substantial cash reserves," Cayetano said. "This is why we've been able to waive landing fees and consider helping the businesses at the airports that are suffering."