Gatwick rating remains well grounded, says Fitch

Gatwick Airport Limited (GAL), the consortium that owns the UK’s second-busiest airport, has started the year in the good books of rating agencies.

Last Friday, bonds issued by the company received a ‘BBB+’ rating from Fitch – three notches within investment grade – meaning that Gatwick has an ‘adequate’ capacity to meet its financial obligation. The agency also ascribed a ‘stable outlook’ to the assessment.

The news will likely please Global Infrastructure Partners (GIP), the largest shareholder in the airport, as well as co-owners Abu Dhabi Investment Authority (ADIA), National Pension Service of Korea (NPS), California Public Employees’ Retirement System (CalPERS) and the Future Fund of Australia. GIP bought Gatwick in 2009, subsequently syndicating the equity to consortium partners.

Explaining its rating, Fitch recognised Gatwick continues to be exposed to economic threats – traffic volume fell by 11.6 percent during the 2008-2010 recession – as its clientele remains chiefly comprised of leisure travellers and operates in competition with Heathrow, the country’s largest hub.

However, the agency pointed out, the numbers of passengers handled by the airport rose by 3.1 percent year-on-year as of September 2013, above the 2.6 percent increase during the same period in 2012. The performance compares favourably with Gatwick’s peers, with a similar rise at Heathrow and a 1.5 percent increase at Stansted Airport, another London hub.

This was partly driven by existing airlines having increased the frequencies of their existing routes as well as others expanding the destinations they serve from Gatwick. In particular, the business brought by Easyjet, the airport’s largest carrier, was expected to grow further this year with an agreement in place to buy 25 slots from low-cost competitor Flybe.

Debt structure was arguably the most sensitive area looked at by the agency, with GAL’s strong security and covenant package somewhat offset by its reliance on bullet debt refinancing and a moderately complex swap portfolio. Yet Fitch said near-term risk in that regard remained small.

The impending revision of economic regulation governing Gatwick’s tariffs, while taken into consideration, was not deemed a threat to the airport’s solvency. Fitch also described the company’s infrastructure development programme positively, saying significant upgrading work had been undertaken over recent years.

The accolade will provide Gatwick with positive news after a difficult festive season, when a nearby river burst its banks on Christmas Eve following unrelenting rainfall in the south-east of England. This led to the cancellations of 62 departures and 59 arrivals as well as to a vocal display of anger by stranded passengers.

Gatwick chief executive Stewart Wingate, apologising to passengers, then admitted that the airport needed to “regain the trust” of its end customers. Gatwick offered £100 (€121; $164) of high street retail vouchers to each passenger whose flight was cancelled on Christmas Eve.