CHICAGO - The credit quality of some airports could be harmed if an upcoming U.S. Supreme Court decision on airport user fees limits their financial flexibility, Standard & Poor's Corp. reported yesterday.
In CreditWeek Municipal, the rating agency said a decision expected this spring in the case of Northwest Airlines, et al. v. County of Kent, Mich., should clarify recent disputes that have emerged between airlines and airports over user fees.
In oral arguments before the high court late last month, airlines charged that user fees imposed by Kent County for an airport in Grand Rapids are illegal because they are not fairly allocated and because they allow the county to reap excessive profits. The case against Kent County is similar to disputes that have erupted between airlines and airports in Los Angeles and Honolulu, Standard & Poor's said.
Peter Bianchini, a director at the rating agency, said the decision in the Kent County case could set a precedent for the other disputes.
If the court decides to limit the ability of airports to raise revenues, airports that are charging airlines a flat landing fee and that do not have long-term agreements with airlines could be hurt, Bianchini said. In its comment, the rating agency said that such a situation could lead to less discretion on the part of airports to set fees, thereby, limiting their financial flexibility, which the agency called "a critical rating factor."
"One of the basic tenets of our airport revenue bond rating is the ability of airports to set rates to cover costs and maintain the facility," Bianchini said.
If the court rules in favor of Kent County, "it's pretty much status quo for us," Bianchini said.
However, the court has a third option, Bianchini said. That is to decide that the U.S. department of Transportation has jurisdiction over fee-setting by airports. In that case, the result might be greater federal regulation of airport fees, "which is not necessarily a good or bad thing," he said.
The Department of Transportation is willing to get involved. In a letter earlier this month to airlines and airports, U.S. Secretary of Transportation Federico Pena said the Transportation Department is prepared to step into disputes between airlines and airports over user fees.
"Normally our role will be to assist parties unable to resolve fee disputes locally to conclude their own agreements successfully," Pena wrote "On the other hand, where a true impasse threatens significant disruption of the national air transportation system, the department will not hesitate to use its existing broad legal authority to review the legality of proposed airport rates and to take all necessary investigatory and enforcement actions in aid of that authority."
Transportation Department officials have already intervened in the Los Angeles International Airport dispute. The airport won a court ruling allowing it to refuse landings by airlines that refuse to pay user fees that were roughly tripled in July. After the ruling and with Transportation Department intervention, airlines agreed to pay the fee, but their challenge is still pending.
Bianchini said Standard & Poor's will probably keep $317 million of AA-minus Los Angeles Department of Airports debt on CreditWatch with negative implications until a decision is made in the Kent County case. The debt was placed on CreditWatch in September when airlines refused to pay the fees.
At the Honolulu International Airport, whose debt is rated A-minus, the situation is still developing, Standard & Poor's said. Use agreements between the airport and airlines have expired and questions may be raised about the "allocation and reasonableness" of user fees, the agency said.
