Fitch Ratings has affirmed the 'AA-' rating on the Raleigh-Durham Airport Authority's (North Carolina) (RDU) approximately $615.2 million airport revenue bonds. The Rating Outlook is Stable.

RATING RATIONALE

The rating reflects a stable historical origination and destination (O&D) traffic based served by a diverse set of carriers and manageable capital plans with no additional borrowing planned in the medium term. Ongoing active management of the cost structure results in a competitive airline cost per enplanement (CPE). The rating further reflects maintenance of a strong unrestricted cash balance which supports the airport's healthy liquidity levels, and coverage remains strong.

KEY RATING DRIVERS

Revenue Risk: Volume - Stronger

Strong Service Area: The economic strength of the airport's growing service area, which encompasses North Carolina's Research Triangle Region, supports the airport's 99% origination and destination (O&D) traffic base. The service area is characterized by high income levels, lower than average unemployment, and strong population growth.

Revenue Risk: Price - Midrange

Robust Cost Recovery Prospects: Flexible rate-setting mechanisms allow RDU to pass through costs with few restrictions, though the short-term nature of the airline leases would provide less protection in a downside economic scenario. The airport maintains a competitive cost position with an airline cost per enplanement (CPE) of $6.91 in fiscal 2015. RDU benefits from a well-diversified air carrier mix led by Delta Airlines (Delta, rated 'BB+'/Positive Outlook) at 30% of fiscal 2015 enplanements and from a blend of operating revenues with parking operations accounting for 39% of the fiscal 2015 total.

Infrastructure Development and Renewal - Stronger

Manageable Capital Program: RDU underwent recent terminal renovations, providing the airport the flexibility to meet near-term demand growth. Capital needs are manageable and do not require parity debt issuance. Fitch does not expect financial position to be materially affected by the authority's pay-as-you-go financing plans. Longer range development plans are under review and release of a 25-year master plan is expected at the end of 2016.

Debt Structure - Stronger

Strong Debt Structure: RDU's conservative debt profile consists of 90% fixed-rate debt, fully amortizes over the tenor of the bonds, and includes a cash funded debt service reserve. RDU has a formal policy to maintain a minimum $50 million unrestricted cash reserve fund, approximately equivalent to one year of operating expenses.

Fiscal 2015 Financial Metrics:

Liquidity is healthy with 1,084 days cash on hand while Fitch calculated coverage remains solid at 1.7x (passenger facility charges [PFCs] treated as revenue). Leverage continues to decline, with net debt to CFADS at 5.4x. CPE remains competitive at $6.91.

Peer Group:

A comparable Fitch rated peer is Orange County, CA (John Wayne 'AA-'/Outlook Stable), which is similarly sized and also a largely O&D airport with a mix a carriers, serving an affluent area. RDU displays a lower CPE while liquidity is very strong with 1,084 DCOH.

RATING SENSITIVITIES

Negative:

--Enplanement decline: A loss of 10% or more enplanements, due to airline consolidation, capacity cuts, regional economic weakness or other factors, could lead to a rating downgrade.

--Less conservative debt structure: The airport's vulnerability to financial stressors could be exacerbated if RDU moderates its cash reserve position or incurs additional indebtedness.

Positive:

--An upgrade in the rating is unlikely given the size of the enplanement base and the leverage position.

SUMMARY OF CREDIT

CREDIT UPDATE

RDU's revenues have seen consistent growth while the Airport Authority continues to maintain a reasonable cost structure. Enplanements increased 4.5% in fiscal 2015 over the prior year, with continued fiscal year to date growth of 4% (six months through September). Carriers have increased their average capacity at the airport.

Fiscal 2015 enplanements of 4.8 million now exceed the 2007 level, essentially recovering the recessionary losses. The service area remains fundamentally strong, the Raleigh metropolitan area November 2015 unemployment rate of 4.6% unemployment is below the national rate of 5% and the metropolitan region is one of the fastest growing in the nation.

Revenues increased 8.9% in fiscal 2015 partially reflecting a 20% increase in the terminal fixed rent rate. Parking and rental car revenue account for 53% of operating revenues, and both these sources experienced growth consistent with the enplanement growth. The 2015 fiscal year end unrestricted cash balance is a strong $159 million, providing 1,084 days cash on hand.

Unaudited financial data for the first six months of fiscal 2016 shows continued strong financial operations, with both revenues and expenditures tracking favourably to budget.

Fitch considers the favorable performance indicative of RDU's long-term financial profile. Debt service is scheduled to remain generally level going forward, and there are no near term borrowing plans. Fitch-calculated DSCRs, in which PFC commitments are included as part of revenues rather than as debt service offsets, was 1.7x in fiscal 2015. RDU has irrevocably committed PFCs to debt service according to a fixed schedule through 2016, though the airport authority intends to fully apply PFCs toward debt service indefinitely. The airport authority reports an indenture-calculated DSCR of 2.48x (2.23x without fund transfers) for fiscal 2015, an increase from the fiscal 2014 coverage of 2.35x (2.10x without transfers).

Fitch's base case scenario assumes moderate traffic growth that is in line with historical averages while revenues also reflect past performance. Under such assumptions, resulting CPE levels remain competitive, reaching a maximum of $7.62 by 2020. Over the forecasted period, coverage approaches a low of 1.44x while leverage reaches a high of 5.7x in fiscal year 2016 and decreases over the next four years to 4.2x.

The Raleigh-Durham International Airport is located in Wake County, between the cities of Raleigh and Durham, approximately 10 miles from downtown areas of both cities. The airport's service area is primarily the Raleigh-Durham-Cary CSA comprising Wake, Durham and Orange counties and five additional nearby counties. Wake, Durham, and Orange counties are part of the larger region known as the Research Triangle Region, a service area characterized by high levels of per capita personal income, below-average unemployment, a large university population, and limited airport competition within a two-hour drive.

SECURITY

The airport revenue bonds are secured by the net revenues of the Airport Authority.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Rating Criteria for Airports (pub. 13 Dec 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296

Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

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Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998679

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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