Q: AND A:

These are not easy times for the nation's airports, or for investors who hold billions of dollars of their revenue bonds.

Adam Whiteman, vice president and head of the airport credit groups at Moody's Investors Service, knows this all to well. While all the major rating agencies have analysts who focus on broad transportation issues, only Moody's has a seven-person team to target the special needs, pressures, and strengths of the nation's airports.

The group was started in 1991 just as the pressures of competition began to push American carriers into bankruptcy or out of existence. The difficulties of airlines that use and pay for airports have increased pressure on investors to understand the carriers' impact on airport bonds.

Whiteman, 36, has been at Moody's for seven years. His credentials include five years in the New York City comptroller's office. He holds a bachelor's degree in biology from Queens College and master's degree from the New School for Social Research, both in New York City.

In a recent interview with Dallas bureau chief John Racine, Whiteman discussed the condition of airports, the criteria that Moody's applies when assessing general airport revenue bonds, and his thoughts on expanding national air traffic capacity while the airline industry contracts.

Q. Since you started the airport group in 1991, how, has your view o the credits changed

A. The biggest change we've had in how we look at an airport is the issue of control of facilities and also specific markets that are being served by the airport. With all the airline bankruptcies, we took a look at the issue of facility control and the access that an airport has to its [gates] should a carrier stop flying.

Q. There was a time when a long-term gate lease has ideal, but the rash of bankruptcies changed the thinking on that among airports. How does Moody's view that?

A. It is a credit concern at some airports. There was a bit of rethinking of what value does a long-term operating agreement with an airline have. You can ask whether an agreement with a carrier in Chapter 11 is worth anything. I'll give you a standard answer: it depends. Our feeling is that we would look past that carrier to the value of the market to another carrier.

Q. How has the financial difficulty with airlines affected the general airport revenue bonds sold by airports?

A. We don't have a one-to-one relationship between an airport and an airline rating. If an airline rating goes up or down, that doesn't necessarily mean that an airport will be affected. Despite the fact that there have been quite a number of rating revisions on the airline side with a good number of airlines now below investment grade, which for us would be below Baa, it hasn't resulted in too many airport ratings revisions. In fact, we've had a couple that have actually been revised upward. One that comes to mind is Miami, which we moved to AA, and Sacramento and Dallas-Fort Worth.

Q. But airports like, Atlanta have suffered with the loss of a carrier like Eastern and with the dominance of Delta Airlines serving as a deterrent to other airlines using empty facilities.

A. Atlanta had some serious effects with [now-defunct] Eastern pulling out and nobody really wanting to take on Delta. It's something that we have been monitoring. Atlanta remains a very large origination and destination market.

Q. Does that mean that you are not viewing the turbulence in the airline industry as a long-term factor?

A. I would turn it around and say that it is a factor that we have taken into our long-term ratings, that this is the type of thing we expect to see. When you assign a rating, it is for the long haul and you expect to see peaks and valleys. For some airports, the last couple of years have been real challenging. I'm not sure we're not going to see a couple more challenges on the horizon.

Q. Have the troubles for the airlines peaked?

A. That's a hard one to judge. Clearly, the airline industry is rethinking the way it does business. it's not clear to me the effect the consolidation within the industry will have. It may prove to be a positive. I think everybody's still trying to feel that out.

Q. It wasn't that long ago that we saw the Federal Aviation Administration pushing for more airports to expand operating capacity. That seemed to contradict what is happening with the carriers contracting. Do you see more airports expanding capacity?

A. I think capacity still is a real issue. I think the differences that you see in the media saying we should have more capacity talks to the different planning horizons that airports and airlines have. I've heard some airlines that have a five-year planning horizon, but for some airlines it's a five-day planning horizon. But airports have a much longer term plan of 15 to 20, to 25 years. They realize there are certain things they need to do to maintain their competitive advantage.

Q. Draw a distinction between the mega-airports and the general hierarchy of airports as Moody's views it.

A. The ratings of an airport don't necessarily reflect its size. You can be a small airport and still have a higher rating. The range of ratings are from Baa [Philadelphia] to Aa.

Q. What are your criteria?

A. We look at five specific areas. We look at finances, the debt, the type, and structure. We look at management and operations, what is the scope of the management and what has been their success; regulatory issues; noise and the environment. And we look at non-financial operating indicators, such as passenger trends, airlines and facility users. And one that affects everything is the type of operating agreement airlines have at an airport.

Q. When we talk about capacity, one thing that many airports hope to do through their capital spending is to eliminate operational delays and make their facilities more efficient. Will that be a competitive and credit factor?

A. When you take a look at the amount of waiting time that can be reduced by adding runways at certain airports in the system, like Dallas and Denver and even Salt Lake City, it is quite significant. That talks to airline profits.

Q. The issue of time savings to airlines has been a major selling point in Denver, where the city expects to open a bond-financed airport in mid-December. That seems to be a point that some investors clearly got and others did not. Is the cost savings trade-off something that you think the average bond investor understands?

A. It definitely can be a credit issue. For instance, United Airlines is contesting slot allocation at O'Hare. They are at the limit of what they can expand to in Chicago. In fact, I understand they are at the point of reducing service in [some] markets to reallocate those spots to other markets. So clearly, the ability to route their airlines to other airports such as Denver is important. Does the average investor understand that? I don't know.

Q. On the subject of Denver, Moody's was criticized by some, praised by others, for maintaining a steady Con. Baa1 rating on Denver International Airport when other analysts had downgraded their view of the project after Continental Airlines went into bankruptcy. Do you feel vindicated in sticking by the rating?

A. Moody's' perspective was that there were certain fundamental strengths at Denver that made that project both logical and feasible. None of the things that have happened [during the project construction] have caused that particularly to change. Sure, there were temporary changes in what was going on with some of the players, but the long-term reasons on why we rated that airport did not change.

Q. There is a lot of speculation about the future of airlines. What do you see?

A. I think we are going to see ways for airports to be able to issue debt to make capital improvements. There is going to continue to be tension between an airport's desire to make capital improvements and the airlines' desire to maintain a competitive edge and to maintain costs. One credit issue we see on the horizon for airports is environmental. In addition to noise [pollution], there is fueling land contamination, storm water run-off issues. And there is a question of how much that will cost to mitigate once it's found.

Another thing that bears watching is the mid-size hubs airports, with the amount of consolidation that has been going on in the industry.

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