CPA succeeds in meeting bond coverage ratio

The Commonwealth Ports Authority is looking forward to getting its negative watch status removed from the Fitch Bond Ratings Agency list, after the airport division succeeded in complying with its bond coverage ratio last month.

CPA comptroller George Palican reported Friday that the airport division posted a 1.85 bond ratio for the first 10 months of fiscal year 2004—surpassing the 1.25 ratio required by its bondholder.

A bond ratio of 1.85 means that CNMI airports generated a net income that is 85 percent greater than the required bond payment.

Palican noted that this was the first time the airport division managed to comply with the bond requirement since 2001. The airports’ bond ratio plunged to a negative 0.49 in July 2002 due to the devastating effects of the Sept. 11, 2001 terror attacks to the travel industry. The division showed improvement last year with a 0.82 bond ratio, but the increase was still not enough to meet the requirement.

CPA executive director Carlos Salas attributed the airports’ improved financial status to increased traffic and CPA’s implementation of austerity measures.

According to Palican’s financial report to the CPA board of directors, the Saipan, Tinian, and Rota airports generated total revenues of $10.7 million from Oct. 1, 2003 to July 31, 2004. About two-thirds of this amount came from aviation revenues while the rest came from non-aviation revenues.

The $10.7 million total revenues for the first 10 months of FY 2004 was 21 percent greater than the airports’ revenues for the same period last year.

Further, the actual revenues posted a 10-percent increase from CPA’s budget for FY 2004, which amounted only $9.7 million.

Meanwhile, CPA expenses in operating the airports reached only $8.4 million, or 4 percent lower than the authority’s $8.8 million budget for the period.

Employees’ salaries and benefits composed 68.5 percent of operating expenses, while the rest of the funds went to maintenance and other non-personnel costs.

The increased total revenues and decreased operating expenses resulted in a $2.3 million excess for the airport. But Salas maintained that this does not mean extra money for the ports authority, as the entire amount is committed to bond payment and debt servicing.

The Fitch IBCA Rating Agency had twice given the airport division a BBB minus in the investment grade rating in the last two years for its failure to meet its 1.25 bond ratio requirement.

Nevertheless, the rating firm earlier this year commended CPA’s efforts to comply with its bond coverage ratio.

Fitch noted that, despite adverse conditions, CPA managed to preserve its liquidity position and improved its finances during fiscal year 2003 due to increased tourism activity and the implementation of cost reduction measures.

Fitch also expressed approval of CPA’s decision to apply for a passenger facility charge, which, CPA said, will help restore its compliance with the bond ratio requirement.

“Fitch will maintain the Rating Watch Negative until the authority receives approval of its PFC application from the FAA and initiates collection of this critical revenue source,” the rating firm said.