By David Pendered
The credit rating of Atlanta’s airport hasn’t been changed, but the airport’s vulnerability to outside forces may be a factor Wednesday at a special call meeting of the Atlanta City Council.
The outside force is an upheaval in the management of Southwest Airlines. On Monday, Southwest Airlines announced President Tom Nealon will retire from the company – three months after he was passed over for the CEO job.
This management shift in a Dallas-based airline matters in Atlanta because Southwest is a major tenant at Hartsfield-Jackson Atlanta International Airport.
Southwest Airline was specifically cited in the credit rating for the $420 million in bonds the council is to discuss Wednesday.
Analysts with Moody’s Investors Service, in their Aug. 31 rating action on the bond package, mentioned Southwest and Delta Air Lines in the section titled, “Factors that could lead to a downgrade of the ratings.” One of the five factors observed that a potential credit downgrade could follow:
- “Any move by Delta to create an additional mid-continent connecting hub or an exit from the market by Southwest Airlines Co.”
At this time there is no indication that Southwest intends to make any changes in its routes.
However, the airline did issue a cautionary statement to investors on Sept. 9, four days before it announced Nealon’s retirement. The statement noted “The Company continues to experience softness in bookings and elevated trip cancellations.”
The “current report” filed by Southwest with the Securities and Exchange Commission did not mention Nealon nor any other leadership shuffle.
Further, the current report stated Southwest does not expect to turn a profit in the third quarter “without taking into account the benefit of temporary salaries and wages cost relief provided by payroll support program proceeds.” Finally, the report observed: “The Company will continue to monitor demand and booking trends and adjust capacity, as needed.”
Regarding Delta Air Lines, there is no indication Delta has interest in expanding its mid-continent hubs beyond Detroit, Minneapolis and Salt Lake City. As Delta noted in its annual report for 2020, filed Feb. 8, traffic through its core hubs has been reduced significantly due to the decreased demand for flight travel during the pandemic. The language suggests there are no further expansion plans.
The council is scheduled to adopt terms for $420 million in bonds that are being sold to refinance existing airport debt at better terms. The council on June 21 had voted to authorize the bonds to be sold with the caveat that the council would reconvene at a later date to finalize terms including interest rates, now set at a maximum of 6 percent a year, and other matters.
The sale of debt proceeded accordingly. Analysts with Moody’s Investors Service on Aug. 31 released a rating of the debt as high grade, meaning investors face a minimal risk of loss. The city council arranged a routine special-call meeting on Wednesday to finalize details of the terms.
The corporate shake-up at Southwest is so recent that the bond rating houses haven’t issued new credit insights to reflect the collapse of the leadership transition that outgoing Southwest Chairman and CEO Gary Kelly announced June 23:
- “I am delighted to announce Bob Jordan as CEO. Bob and I have worked side by side for more than 30 years. He is a gifted and experienced executive and well-prepared to take on this important role. Working closely with President Tom Nealon and Chief Operating Officer Mike Van de Ven, we will begin developing transition plans in the coming weeks and months. These three top-notch Leaders make for a powerful team to lead us forward.”