Fitch rates $2.7 million Spokane Washington International Airports refunding and revenue bonds, series 2001, 'A+'. Fitch also affirms the 'A+' rating on approximately $12,000,000 Spokane Washington International Airport revenue bonds, consisting of $11.6 million series 2000 airport revenue bonds. The Rating Outlook for Spokane Airports (the airport) is Stable.

The 'A+' rating reflects the airport's overall solid financial position. Operating income net of depreciation has rebounded after the events of Sept. 11, growing at an average annual rate of 12.6% to $5.8 million in fiscal 2003 from $4.6 million in fiscal 2001 as a result of steady operating revenue growth and controlled operating and maintenance spending. Additional evidence of solid financial operations includes a strong operating margin of roughly 30% for the past two fiscal years and a cost per enplanement (CPE) of $3.51 in fiscal 2003. Senior lien debt service coverage ratio levels have ranged from 3.25 times (x) in fiscal 2000 to 2.48x in fiscal 2003, well in excess of the higher than average 1.3x rate covenant.

Adding to the airport's credit strengths are the high origination and destination (O&D) percentage and good air carrier market share diversity. The airport's 97% O&D demonstrates its monopoly position as the only commercial service airport within 178 miles and limited reliance on airline connecting activity. Its market share diversity has limited concentration in one air carrier, Southwest (27%), with the remaining leading airlines each serving less than 20%: Horizon Airlines (18%), Alaska Airlines (17%), and United Express (10%). Fitch feels Southwest Airline's (rated 'A', Stable Outlook by Fitch) strong financial performance mitigates the credit risk associated with market share concentration.

Credit risks include slow passenger enplanement growth that has not returned to pre-Sept. 11 levels, and a small to moderate service area with lower than average wealth levels. Enplanements have decreased at an average annual rate of 3.6%, to 1.4 million in fiscal 2003 from a peak of 1.6 million in fiscal 2000, largely due to the events of Sept. 11 and a slowdown in the national economy. However, the trend is showing signs of reversing as year-to-date fiscal 2004 results reflect enplanement growth of 9.97% over fiscal 2003. The airport's service area consists of a population of roughly 1.5 million spanning the inland northwest region including parts of Idaho, Montana and Canada. Spokane County (the county), the primary service area, has grown a moderate 3.1% since 2000. The county's wealth levels are below state and national averages, where 2002 per capita income personal income was $26,637, 84.5% of the State of Washington and 86% of the national average. Meanwhile, economic growth has been moderate, expanding 4.9% for the past decade compared to state and national growth of 5.9% and 5.2%, respectively.

A credit consideration is the airport's capital improvement program (CIP) that has identified roughly $75 million in capital needs for fiscal years 2004-2009. While the airport plans to finance the majority of the CIP through federal grants and Passenger Facility Charge (PFC) revenues, it has a history of drawing down cash reserves to fund capital projects. Fitch feels maintaining liquidity in the form of adequate cash reserves bolsters credit quality, and the airport's policy of relying on cash reserves to fund capital projects could undermine financial flexibility. Fitch will continue to monitor the situation.