February 12, 2020 – Despite market fears that the current #coronavirus crisis might precipitate a global slowdown, Morgan Stanley issued a report today expressing bullish sentiment on a municipal sector some have considered vulnerable to the virus: airports.
Analysts Michael Zezas, Mark Schmidt and Barbara Boakye concluded transportation credits – in particular airports relative to toll roads – remain buying opportunities, arguing the following:
- Both toll roads and airports are true enterprise credits, and have sufficient operational and legal separation from parent governments.
- In addition, such credits typically have minimal pension liabilities
- While both toll roads and airports have strong debt service coverage, the airport sector may be more attractive as toll roads are vulnerable to parent governments diverting revenues for unrelated projects
- Airports offer incremental credit spreads of as much as 50 basis points versus comparably-rated State General Obligation debt
- Airports have fewer competitors than toll roads. Also, mass dehubbing, which impacted the sector in the 80s and 90s – is deemed an unlikely scenario given scarcer capacity
Two institutional investors BuyMuni spoke with were more cautious on airport credits, contending that the sector have suffered two recent headwinds: (1) the Boeing 737 grounding which has pressured airlines to raise ticket prices, and (2) this month’s coronavirus outbreak which has cut off virtually all Chinese tourists from the United States since February.
The SARS outbreak in 2003 was estimated to cost North American airlines $1+ billion in revenues, according to the International Air Transport Authority (IATA).
Contact Caren Moses at CMoses@buymuni.com.
