Rating agency weighs impact of Asian crisis on CNMI

Fitch IBCA, an international rating agency, will closely monitor the short-and-long term effects of Asia’s financial crisis on the CNMI’s airport operations after it granted a BBB minus rating to the $20 million airport revenue bonds.

In a financial analysis it made, Fitch IBCA noted that the airport system achieved overall historical enplanement increases despite a significant decline in traffic in fiscal year 1998.

The 25 percent drop in passenger traffic in fiscal year 1998 was brought about by the Asian economic crisis and the decision of Continental Micronesia to divert some traffic from Saipan to Guam. In

According to the agency, the BBB minus rating reflects the CNMI’s position as a desirable but maturing tourist destination for Asian travelers, and the tourist industry’s positive impact on passenger activity at the airports.

The agency considers the solid relationship that the ports authority has with its major air carriers — Continental Airlines began in 1968 and Japan Airlines began in 1977.

Additional strengths are the airport’s financial profile including its relatively low debt leverage, a small but moderately diverse revenue base, and adequate debt service coverage, the agency said.

However, the positive factors are weighed down by the fact that the airport system’s concentration of passengers from Asia and the effects of the region’s current economic woes.

In addition, passenger traffic at the airport system is concentrated in leisure travel (tourists) which is dependent on discretionary income. Furthermore, tourism-related traffic at CNMI is subject to competition from other destinations such as Guam.

“While weather-related incidents, such as typhoons, have the potential to affect tourists traffic, historical data indicate that typhoons have not had much of an impact on the airport’s operations,” the report said.

Among the strenghts of the airport system identified by Fitch IBCA are solid operations and financial management, low debt leverage, and solid debt service coverage, relatively diverse revenue base, strong overall historical enplanement growth, desirable tourist destination, especially for Asian travelers, long-standing relationships with key air carriers and Korean economy and traffic rebounding.

On the other hand, the risks include significant negative effect of the Asian economic crisis on operations and financial results, passenger traffic depends primarily on tourism which is further dependent on discretionary income, competition from other tourists destinations, currency risk exposure, some flights reallocated from
Saipan to Guam and weather-related risk (typhoon).