Moody's Assigns 'A2' Rating to Airport Commission

Moody's Assigns A2 Initial Rating to Capital Region Airport Commission's $50.6 Million Series 2008A Airport Revenue Bonds; Rating Outlook is Stable; Airport has a Total of $150.7 Million Rated Debt Outstanding

Opinion

New York, Feb 27, 2008 - Moody's Investors Service has assigned an A2 underlying rating to the Capital Region Airport Commission's ("the commission") $50.6 million Airport Revenue Bonds, Series 2008A. The rating outlook is stable. At this time, Moody's is also assigning an A2 underlying rating to the airport's parity revenue bonds outstanding in the amount of $100.1 million. The Series 2008 Bonds are expected to be insured by a provider rated by Moody's. Subject to Moody's review of the insurance policy and other relevant documentation, the bonds will carry the financial strength rating of the insurance provider. Moody's will nonetheless maintain its underlying rating. The commission operates and maintains Richmond International Airport ("the airport" or "Richmond").

Moody's Rating

ISSUE	UNDERLYING RATING	RATING
Airport Revenue Bonds, Series 2008A	A2	A2

Sale Amount	$50,600,000
Expected Sale Date	03/01/08
Rating Description	Airport Revenue Bonds

Moody's Outlook Stable

USE OF PROCEEDS: The Series 2008 bond proceeds will be used for construction of a 2,600 space expansion of the north parking garage, structural improvements to the south parking garage and an approximately 1,800 space expansion of an economy surface parking lot.

INTEREST RATE DERIVATIVES: None. The airport's Series 1995 Airport Revenue bonds are variable rate bonds insured by Ambac (rated Aaa on watch for possible downgrade), but interest rates have remained below 3.5% to date.

STRENGTHS

• Diverse air carrier service with two primary carriers Delta Air Lines (long term corporate family rated B2) and US Airways (long term corporate family rated B3) each holding 25% market share * Low cost carriers have driven very strong enplanement growth since 2005
  
• Above average liquidity as demonstrated by 532 days cash on hand

• The airport faces significant competition from nearby airports in Norfolk (Norfolk Airport Authority rated A3), Newport News, and Washington, D.C. (Metropolitan Washington Airports Authority rated Aa3)
  
• Current elevated enplanement levels are recent due to introduction of low cost service and demand levels are not firmly established
  
• Outstanding debt is high relative to current enplanement levels
  

Richmond has seen very strong enplanement growth over the last five years as AirTran (long term corporate family rated B3) and JetBlue (long term corporate family rated B3) began service in 2005 and 2006, respectively. The additional competition from these low cost carriers has helped to generate enplanement growth of 56.0% since 2002. The airport's primary carriers, Delta Air Lines and US Airways, also have contributed to the strong enplanement growth and have maintained the highest market share with 25.0% and 25.1%, respectively. Moody's views this growth as a key strength of the airport's credit rating, but also notes that the growth is recent and the level of demand has not yet been tested by market volatility.

The airport faces strong competition from airports in the nearby cities of Washington, D.C., Norfolk, and Newport News. Washington's Dulles International and Reagan National Airports are within 100 miles and offer more flight selections and destinations than Richmond. The airports in Norfolk (75 miles) and Newport News (50 miles) are closer in proximity, size, and market reach to Richmond. Both airports enjoy low cost carrier service, particularly Norfolk which is served by Southwest Airlines (Senior Unsecured rated Baa1).

With the introduction of AirTran and JetBlue, Richmond is able to compete much more effectively and retain a greater share of passengers from its service area. This is indicated by the growth of the airport's utilization ratio from 1.0 to 1.4 from 2002 to 2007.

The airport's service area consists primarily of the City of Richmond (GO rated Aa3) metropolitan area. The commission is composed of representatives from the city as well as the Counties of Chesterfield (GO rated Aaa), Henrico (GO rated Aaa), and Hanover (GO rated Aa1). Each entity appoints four representatives for a four year term, with the exception of Hanover County, which appoints two representatives. The Richmond metropolitan economy is solid with above average income levels and strong employment trends. Moody's notes some concerns about state fiscal imbalances and the area's exposure to old-line manufacturing and chemicals. Richmond's development in service and high tech industries should provide for substantial future growth.

Enplanement growth has generated strong operating revenues in recent years, adding to the commission's financial strength. The commission has achieved double digit growth in net income for each of the past three years. Debt service coverage for the airport's revenue bonds has climbed to 2.47x in FY2007 from 1.85x in 2003. Recent gains have also allowed the airport to maintain strong liquidity while improving the physical facilities of the airport. Financial liquidity at the end of FY2007 stood at 532 days cash on hand, above the Moody's median of 469 for U.S. airports with a compensatory or hybrid rate making methodology. While the authority does expect to use some funds for capital expenditures, the amount is expected to remain below $6 million and should not substantially change the airport's liquidity position.

The airport consultant's report indicates that debt service coverage will erode somewhat with the issuance of the 2008 bonds. Based on fairly conservative assumptions and a 3.8% enplanement growth rate, debt service coverage will reach a minimum of 1.85x in 2010. In addition, airline cost per enplanement, which stood at $5.32 for FY2007 is expected to remain below $6 through 2016.

Moody's A2 rating applies to the current issuance and approximately $100.1 million of parity outstanding airport revenue debt. Moody's does not rate the airport's $49.0 million of Series 2005 Passenger Facility Charge bonds or $8.6 million of Series 2000 Customer Facility Charge bonds, which are not secured by general airport revenues.

The airline use and lease agreement includes eight signatory airlines and runs through November 30, 2009. The agreement includes a revenue sharing component with the airlines for 50% of all surplus revenues. In addition, the commission has the ability to make extraordinary rate adjustments as required if any of the key components of the rate setting calculation are expected to vary by 10% from budgeted figures.

Strong enplanement growth has required the airport to make substantial investment in its facilities. A terminal expansion and renovation project was completed in 2007, but management believes investment in other airport facilities remains essential for growth and it has developed a $235 million capital improvement plan (CIP) for these facilities from 2008 to 2012. The 2008 bonds will fund an expansion of the north parking garage that will add 2,600 parking spaces and also provide improvements to the south parking garage, and an expansion of economy lot B that will add another 1,800 parking spaces.

The current parking expansion and associated improvements are expected to cost about $50.3 million and are part of the airport's list of active projects in the 2008-2012 CIP. The active project list totals $124.9 million including the parking project, and the commission expects to fund projects with a combination of revenue bonds, PFC bonds, federal and state grants, and airport revenues. The commission expects to use approximately $4.8 million of its own funds as part of the current parking project. Aside from the parking expansion project, the 2008-2012 capital program includes improvements to the airport's water distribution system, design work for rehabilitation of Runways 2/20 and 16/34, and an update to the airport's master plan.

No additional revenue bonds are currently planned.

Outlook

The stable outlook is based on Moody's expectation that enplanement levels will remain at or near current levels and revenue will continue to adequately support debt service.

What could change the rating-UP

Sustained enplanement growth leading to wider financial margins could place positive pressure on the ratings.

What could change the rating--DOWN

A substantial reduction in enplanement levels or an increase in debt requirements could provide downward pressure on ratings.

KEY INDICATORS

Type of Airport: O&D

Rate methodology: Hybrid

FY2007 Enplanements: 1,735,794

5-Year Enplanement CAGR 2002-2007: 9.3%

FY 2007 vs. FY 2002 Enplanement growth: 56.0%

FY 2007 vs. FY 2006 Enplanement growth: 11.4%

% O&D vs. Connecting, FY 2007 (5 YR AVG): 100% (100%)

Largest Carrier by Enplanements (share): US Airways (25.1%)

Airline Cost per Enplaned Passenger, FY 2007 (5 YR AVG): $5.32 ($6.51)

Debt per Enplaned Passenger, FY 2007 (5 YR AVG): $87 ($100)

Bond Ordinance Debt Service Coverage, FY 2007 (5 YR AVG): 1.17x (1.13x)

Utilization Factor, FY 2007 (5 YR AVG): 1.4 (1.2)

RATED DEBT

Series 1995B&C General Airport Revenue Bonds, $15.8 million

Series 2001A&B General Airport Revenue Bonds, $41.4 million

Series 2004A General Airport Revenue Bonds, $14.5 million

Series 2005A General Airport Revenue Bonds, $28.3 million

CONTACTS

Mr. Douglas Blum

Chief Financial Officer

Phone (804) 226-3011

Analysts

Kurt Krummenacker

Analyst

Public Finance Group

Moody's Investors Service

Maria Matesanz

Backup Analyst

Public Finance Group

Moody's Investors Service

Contacts

Journalists: (212) 553-0376

Research Clients: (212) 553-1653

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