Delta’s top credit rating reflects lower costs of hub at ATL airport: Moody’s report
By David Pendered
As state lawmakers consider taking over Atlanta’s airport, Delta Air Lines, Inc. on Wednesday received a top credit rating from Moody’s Investors Service that builds on a recent rating that said one of Delta’s key credit strengths is the lower costs of doing business at Atlanta’s airport.
The Georgia Senate voted Thursday to pass legislation that initially called for a state authority to take control of Atlanta’s airport. The version of Senate Bill 131 now heading to the House for a vote calls for the establishment by July 2020 of a joint governance plan that, if created, would eliminate the proposed state take-over.
Analysts with Moody’s considered the costs facing airlines that have hubs other than in Atlanta. Delta’s costs to run its hub in Atlanta are lower than those of its competitors.
The proposed state take-over is not mentioned in either the credit rating issued Wednesday, or in a credit opinion released Feb. 19.
The rating action assigned investment-grade ratings to Delta’s proposal to borrow $500 million to purchase a new design of aircraft to challenge competitors. Delta intends to use the aircraft to challenge competitors in cities including Boston, Dallas-Fort Worth, Houston and San Jose, Ca., according to the rating action.
The credit opinion issued Feb. 19 made it clear Delta’s investment-grade credit rating reflected the cost of doing business at its hub at Atlanta’s Hartsfield-Jackson International Airport.
The opinion’s summary statement observes:
- “The company will maintain its consolidated unit revenue premium, which supports its stronger operating profit and cash flow generation, as does having its main hub at lower cost Atlanta Hartsfield-Jackson airport.”
The next page cites Delta’s credit strengths, which include:
- “Low cost per passenger of Delta’s main hub at Atlanta-Hartsfield provides a built in margin advantage.”
A segment titled, Detailed Credit Considerations, in a section, Delta continued unit revenue dominance in 2018, observes:
- “We attribute the advantage to Delta’s revenue premium, benefits of its main hub being at lower cost Atlanta Hartsfield-Jackson airport and advantages on non- fuel, non-labor operating expenses.”
Moody’s analysts released the reports before either chamber of the Georgia Legislature had voted on a proposal for the state to create an authority to manage the airport Atlanta owns.
Atlanta will have no voice in the management of the airport it founded and developed, according to terms of SB 131. The members of the proposed state authority that is to oversee the proposed General Major Airport Authority is to be comprised of:
- The Governor or his or her designee;
- The Lieutenant Governor or his or her designee;
- The Speaker of the House of Representatives or his or her designee;
- The commissioner of transportation or his or her designee;
- The commissioner of public safety or his or her designee;
- The commissioner of economic development or his or her designee;
- Two persons to be appointed by the Governor;
- Two persons to be appointed by the Lieutenant Governor; and
- Two persons to be appointed by the Speaker of the House of Representatives.
The proposal is intended to replicate the structure of the state authority that manages the Georgia World Congress Center, which is a convention facility in Downtown Atlanta owned by the state of Georgia.