Spirit collapse risks rating tied to Atlantic City Airport

“The South Jersey Transportation Authority, which operates Atlantic City International Airport, is at risk of a credit downgrade after the collapse of Spirit Airlines sharply reduced traffic at the airport. Fitch Ratings on Monday said it had placed the authority’s senior and subordinate transportation system revenue bonds on Rating Watch Negative, citing the financial impact of Spirit’s exit. The airline accounted for about 76% of passenger traffic at Atlantic City International, leaving the airport without daily commercial service. Spirit Aviation Holdings Inc shut down earlier this month, after failing to secure emergency funding. The airline had struggled with mounting losses even before rising fuel prices tied to conflict in the Middle East added pressure. The collapse has rippled through the aviation industry in recent weeks, as competitors vie for market share. While carriers including Breeze Aviation Group, Inc, American Airlines Inc and Allegiant Travel Company are expected to help offset some of the service cuts at the Atlantic City airport, Fitch said the authority’s operating deficit could widen, weakening its financial position. The airport has two layers of debt, both with fixed interest rates and level repayment obligations of about $59mn a year through 2050, Fitch said. Fitch said a downgrade could follow if the airport fails to replace Spirit’s traffic, leading to larger deficits that pressure the authority’s cash flow. The Rating Watch Negative could be resolved to stable “if the authority provides structural or financial risk mitigation that supports its ability to maintain financial metrics consistent with the current rating level,” according to the rating report. However, the analysts noted that an “upward rating migration is unlikely” given the transit authority’s narrow revenue base and exposure to discretionary leisure traffic.

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