Fitch rates New Orleans Aviation Board's $54.5MM Series 2010A&B Revs 'A-'

-Approximately $53,000,000 series 2010A;

-$1,500,000 series 2010B.

The bonds are solely secured by passenger facility charge (PFC) revenues collected at Louis Armstrong New Orleans International Airport (the airport) with no recourse to other revenues and funds of the airport. Fitch also affirms the 'A-' on the airport's $83,890,000 outstanding series 2007A and B PFC parity bonds. The Rating Outlook is revised to Negative from Stable.

The 'A-' rating reflects the adequate coverage of annual debt service provided by current PFC revenue, the lack of significant competing facilities within the air service area and the significant recovery in airline traffic since hurricane Katrina hit New Orleans in 2005. Principal credit concerns include the narrow revenue stream supporting the PFC bonds, the direct reliance on enplanement activity to pledged revenue, and the region's exposure to future event risk namely tropical storms and flooding. The Negative Outlook reflects increasing concerns that the additional leveraging associated with the series 2010 bonds coupled with lower expected PFC fund balances will limit the financial protections of this revenue stream. Should traffic growth over the next one to two years not meet indicated forecasts that will enhance coverage levels, the rating will likely be lowered.

The region's significantly reduced population and economy in the aftermath of Katrina resulted in a dramatic decline in enplanements, with passenger volume decreasing by 20% in each of fiscal years 2005 and 2006 to a low of 3.1 million enplanements. This reduction represents a drop of 958,100 and 795,800 enplanements for 2005 and 2006 respectively. However, significant service gains allowed for a strong recovery in 2007 and 2008 with enplanements growing at 21.1% and 5.9% respectively reaching approximately 4 million enplanements. Fiscal 2009 ended with a 2.1% decrease in enplanements due to the effects of the global economic slowdown and reduced airline activity. Management expects enplanements to increase in 2010 by 3.3%; however, year-to-date enplanements as of February are 2.1% lower than the same period in fiscal 2009. A 4% growth rate is forecast by Management for the period 2010 to 2013.

The airport has managed to retain a diverse mix of airlines despite the decline in enplanements. An increase in activity by Southwest Airlines (Southwest; Fitch Issuer Default Rating 'BBB' with a Negative Outlook) brought its share of total enplanements to 1.1 million or 30.3% in 2009 from 24.2% in 2006. Other carriers with a significant presence at the airport include Delta and Continental Airlines which account for 13.9% and 13.1% of enplanements respectively. Additional carrier service - one daily flight - by Midwest Airlines to Kansas City will take effect in May 2010 while Frontier will be resuming a daily flight service to Denver International beginning in June 2010. Southwest also started a Baltimore route in March of 2010 and will have scheduled non-stop service to thirteen cities with an average of 39 daily departures compared to 57 daily non-stops pre-Katrina. Additions in service, new routes and upgrades in aircraft size are necessary catalysts for improving traffic activity going forward.

The airport's increasing leverage of its PFC program to fund capital projects will pressure its debt service coverage going forward. Maximum annual debt service (MADS) coverage assuming fiscal year 2009 enplanements is 1.49 times (x) down from 4.69x in 2006. Debt service coverage by PFC revenues for 2008 and 2009 was at 2.45x and 2.25x respectively. As of the end of fiscal year 2009, the airport held approximately $35 million in unspent PFC resources which are expected to drop to the $2 million level in 2013 as draws will be made to fund other PFC projects at the airport. Fitch perceives the drawdown of the PFC fund balance and the current leveraging of PFCs as a concern seeing that they diminish NOAB's available liquidity and provide for a narrower coverage cushion given the airport's natural exposure to event risk. A sensitivity analysis stressing the projected levels of enplanements assumed a 20% decline in enplanements (to simulate event risk), a conservative recovery growth rate of 10% immediately following the shock, and a modest growth rate of 1.8% through 2019 indicates a much weaker coverage but remains above 1.25x as the airport demonstrates its resiliency to such a shock.

The airport's current capital improvement plan totals $429 million of which $111 million are allocated to the 2009 PFC projects which include the expansion of Concourse D (in two phases), terminal interior and exterior improvements, and an in-line baggage system. The series 2010 bonds will provide 43.1% of the funding or $48 million, $39.7 million will come from other funds and $23.7 million in PFCs on a pay-as-you-go basis. After this issue, the airport consultant's forecast indicates that PFC revenues should provide not more than 2.04x coverage through 2019.

Although the New Orleans airspace has seen significant recovery, traffic will continue to be challenged to reach pre-Katrina levels. New Orleans, a destination city, will remain vulnerable to external shocks resulting from weather events (hurricanes and flooding) and to the performance of the U.S. national economy.