CHICAGO - Federal Aviation Administration and airport financing officials are working hard to find a way for airports to issue bonds backed solely by revenues from passenger facility charges.

The big stumbling block remains the rating agencies.

Donna Taylor, manager of the passenger facility branch of the FAA, said yesterday that finding an administrative remedy to ease rating agency concerns has been a slow process.

The concerns, which center on the FAA's power to cancel an airport's ability to collect the passenger facility charges, have led to somewhat tough stands by the agencies. Standard & Poor's Corp. has said it will not rate debt backed only by the charges, while Moody's Investors Service has said such bonds would be unlikely to achieve an investment-grade rating. Fitch Investors Service's policy is to review the bond issues on a case-by-case basis.

"The way the legislation is written, if the airports don't perform to guidelines, the FAA pulls the charges and the only ones to suffer are the bondholders," said Ernie Perez, a director at Standard & Poor's.

Taylor said the FAA is working with the industry to find a solution. "We're hopeful we can do something short of legislation that can have a beneficial effect," she said.

It has been more than four years since Congress passed legislation enabling airports to collect a $1 to $3 charge per enplaned passenger and leverage the revenue for bond issues. Airports have yet to issue long-term rated debt backed solely by revenues from the charge. To earn a rating, most have had to pledge general airport revenues as well as charge revenues.

The FAA has tried unsuccessfully to ease concerns by stating that the collection of charges by an airport would be terminated only if there are "dire misuses" of the funds, and by addressing the ability of airports to issue unrated debt backed by charge revenues.

Gerald Fitzgerald, deputy director of aviation for the Port Authority of New York and New Jersey and past chairman of the American Association of Airport Executives, said a special working group of the association has been in discussion with the FAA over the issue.

Fitzgerald said the group sent the FAA a letter last February suggesting alternatives to suspending passenger facility charges, such as turning first to Airport Improvement Program grant moneys received by an airport to enact punitive measures.

"We said to everyone that it looks like a win-win for the administration if it would allow the airports to levy a revenue stream for capital projects that will put more people to work and won't cost the federal government anything," Fitzgerald said.

The group also suggested an administrative rule change that would detail the FAA's procedure for suspending the collection of charges to give airports time to correct the infractions.

"Now there is no procedure," Fitzgerald said.

Taylor said the association's suggestions have been reviewed, but that the FAA has nothing concrete yet to show the industry at large.

Few industry participants apparently want to reopen in Congress the law authorizing passenger facility charges. Industry officials point to last summer's experience with the reauthorization of the Airport Improvement Program. Amendments that would have limited airports' discretion over charging airline user fees were tacked onto the reauthorization bill by the Senate. The amendments, which raised credit concerns at the rating agencies, were later dropped.

"I don't think it's realistic at all," said Rob Wigington, senior vice president for governmental affairs at the Airports Council International, referring to a legislative remedy. "The FAA can do some things to make it clear and give enough comfort to the bond community and the rating agencies that it will not terminate [the charges] except in extreme circumstances."

Harry Kluckhohn, a financial consultant to airports, said that a change in the passenger facility charge law may be the only way to win over the rating agencies because the FAA cannot waive its right to suspend collection of the charges.

Adam Whiteman, a vice president at Moody's, agreed. "A legislative fix would be ideal," he said. But Perez at Standard & Poor's said that finding "a stick to hit" airport management with to ensure compliance with FAA guidelines is a possibility worth pursuing.

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