SIMPSON BAY, St. Maarten (Sunday, October 25, 2015)—In its latest credit opinion on the Princess Juliana International Airport Operating Company, PJIAE NV, Moody’s Investors Service gave the company the same favorable Baa2 rating with a stable outlook it had granted it in 2012, although it noted a number of delays in the execution of the capital improvement program, which could result in cost overruns.
As part of its detailed considerations for the rating, Moody’s analysts pointed to “several unanticipated challenges while securing the new fuel farm location at the current Goddard Catering site.”
“As a consequence, many of the remaining projects are delayed including the fuel farm relocation, Goddard Catering relocation as well as the construction of the fixed based operations (FBO) terminal and the rescue and fire and technical buildings,” Moody’s stated.
And although it said “Management neither expects the program to be delayed further nor to issue debt in order to complete the projects,” the analysts added, that “Our expectation is that some delays and cost overruns are likely to occur due to the projects’ dependency on one another, but this is partially compensated by the improved cash generating capacity.”
Among what could drive the ratings up, Moody’s said was the “completion of the capital programs on time according to the new schedule and within budget.”
Moody’s listed among PJIAE’s credit strengths the fact that it is the “dominant commercial airport on the island … that also serves as a connecting hub for neighboring islands lacking long-haul air service of their own,” and that the “main terminal, completed in 2006, provides sufficient capacity to accommodate planned growth without the need for extensive capital improvements.”
Other strengths include the “desirable mega-yacht facilities on the island adjacent to the airport (which) drives demand for general aviation,” as well as the fact that “Tourism to the island is driven by high proportion of time share properties and the high end destinations of St. Barths, Anguilla and a proportion of exclusive villas in St. Maarten/St. Martin, resulting in repeat visitors and less passenger volatility than that of other tourist destinations.”
Moody’s also considered as another strength, “a diversified market base of travel origins including the USA, Canada, Europe, Central/South America and the Caribbean (which) helps mitigate single source for business risk.”
The challenges PJIAE faces, according to Moody’s, include exposure to volatility as a result of the “large dependence of the island and the airport on tourism” and the fact that though the debt service reserve has improved from three to six months, it is still “lower than industry norms.”
Other credit challenges identified by Moody’s are the Island’s location in the hurricane belt, which increases event risk to bondholders and the “compensatory nature of airport revenues (which) leaves the airport fully exposed to demand risk.”
“We are pleased with this credit opinion and will continue to work diligently to meet the performance benchmarks set especially for our capital improvement program as mentioned by Moody’s,” said Regina LaBega, managing director of SXM Airport.
