Auckland Airport's credit profile could be materially affected by a prolonged or sustained decline in passenger numbers because of the coronavirus, says S&P Global Ratings.
The ratings frim says that would require ''appropriate'' management and funding of capital expenditure
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''This is because Auckland Airport has a large capital expenditure programme relating to its aeronautical operations under its current price-setting agreement, which the airport expects to primarily fund with debt," said analyst Meet Vora.
Auckland Airport's half-year profit is flat at $147.2 million but the company forecasts its full-year result will be hit by the impact of the coronavirus outbreak.
The 12-month result could be affected by as much as $10m.
S&P Global Ratings said the airport (A-/Stable/A-2) could absorb a further dip in passenger traffic over the rest of the year ending June 30, 2020, within the current ratings tolerance.
The airport reported total passenger growth of 0.7 per cent for the rolling 12 months ended December 31.
''This is significantly below our expectations of total passenger growth of about 2.5 per cent to 3.5 per cent and is primarily driven by lower passenger arrivals from China as well as withdrawal of some domestic capacity.
"In our view, Auckland Airport's passenger numbers for fiscal 2020, could decline for the first time in 10 years,'' Vora said.
The new coronavirus outbreak will further dampen passengers during the second half at least.
Lower passenger numbers could not only cut aeronautical revenues, but also some non-aeronautical revenue such as retail food and beverage sales, duty free shopping, and parking, although by a lower proportion.
Vora said the airport had significant financial headroom currently to withstand a dip in passenger traffic over the rest of the financial year.
''Still, the effect of the virus outbreak on passenger numbers, and therefore, earnings over the next several months is currently uncertain,'' said
Under a stress scenario of total passenger traffic falling by 5 per cent (domestic and international decline by 5 per cent each) for the financial year, we believe Auckland Airport could still sustain a funds from operations to debt at about 14 per cent.
First out of the blocks
The company says it delivered a ''solid performance'' delivering earnings before interest expense, taxation, depreciation, fair value adjustments and investments in associates (Ebitdafi) of $279.2m in the six months to the end of December, a rise of 0.8 per cent on the previous half-year period.
The airport is the first big aviation and tourism-related company to report its result this year and says the spreading coronavirus outbreak will be felt in its full-year result.
"As we look to the remainder of the financial year we expect underlying profit after tax (excluding any fair value changes and other one-off items) for the full year to be between $260 million and $270 million,'' said chief executive Adrian Littlewood.
The company has previously forecast a full-year underlying profit after tax to be between $265m and $275m.
''This is a slight reduction on the original guidance for the year, reflecting Auckland Airport's current estimates of the impact of the Covid-19 outbreak. We will continue to monitor developments and update guidance if actual outcomes differ materially from current assumptions.''
Chairman Patrick Strange said the tourism market was in a period of consolidation.
''We are also working closely with our airline and tourism partners to understand the impact of the Covid-19 outbreak. But we remain confident about our prospects over the medium to longer term and continue to lay the groundwork for future growth," he said.
Auckland Airport will pay an interim dividend of 11 cents, unchanged from a year ago, on April 3 to shareholders registered at March 20.
The shares last traded at $8.35 and are down 4.6 percent so far this year.
Harbour Asset Management director and portfolio manager Shane Solly said the underlying profit was better than expected.
Strange also said that total investment in infrastructure projects now under construction had reached $1.2 billion as part of a broader $1.5b development programme underway across the precinct.
Littlewood said a decision on the airport's second runway could be made later this year.
The airport's results are to December 31, just when the World Health Organisation became aware of a mystery virus in Wuhan, China. There were just dozens of reported cases then but the coronavirus but it now threatens to become a global pandemic with 73,000 cases in 29 countries around the world with more than 2000 deaths, nearly all in China.
Since travel restrictions were imposed early this month and as demand collapsed for seats on planes between New Zealand and China services into the Auckland Airport have been slashed.
Air New Zealand suspended daily flights to Shanghai until the end of March and will only reinstate a more limited service from April if restrictions and health concerns ease. Chinese carriers which have about 85 per cent of the market have also cut flights to Auckland.
The airport this year has also been copping criticism after it had to close its runway at short notice twice in quick succession because it had debris on it, prompting an international alert from a pilots group. The company said little about the problems on January 24 and February 6 but yesterday sought to take heat out of the issue with the early release of an internal review into its response time.
Although it did not deal with detail of what is happening to concrete slabs on the landing zone most frequently used, the airport said it is satisfied with the safety and integrity of the runway. The review found it could have responded more quickly to cleaning up debris and making temporary repairs to the runway.