CHARLOTTE, N.C. -- In a new report this week, the credit rating agency Moody’s said a change in control of Charlotte Douglas International Airport likely won’t affect its credit rating or ability to make debt payments.
The fate of $860 million worth of bonds backed by airport revenue has been a flashpoint in the fight for control over Charlotte Douglas. Supporters of city control say the bonds could be at risk of default if a new, independent commission takes control.
But Moody’s said there remains a possibility of a “technical default” on the bonds. In such an event, the bonds would still be paid but some of the conditions attached to them would be violated.
The rating agency also appeared to criticize the new commission’s rapid creation.
Analysts wrote that “some of the players involved may not be taking full account of relevant federal laws in an attempt to make changes quickly without fully understanding potential requirements or consequences.”
Last month, the N.C. General Assembly gave approval to create a 13-member airport commission that would take operational and financial control of the airport away from the city, but leaves the bonds and ownership of airport property with Charlotte.
The city would appoint seven of the 13 members, a majority, while the rest would be appointed by county commissioners in Mecklenburg and the five surrounding counties.
The measure is in flux, however. A Mecklenburg judge ruled last Thursday that the transfer to a new, independent commission cannot occur until approved by the Federal Aviation Administration. No timetable has been given by the FAA.
“We do not see any immediate, direct credit implications related to potential changes in CLT’s ownership structure or management,” Moody’s wrote.
Wednesday, both sides in the airport battle said the Moody’s report bolstered their argument.
“It looked to me like a very good report,” said Richard Vinroot, a former Charlotte mayor and attorney representing the airport commission and ousted aviation director Jerry Orr. He said the Moody’s report supports his client’s contentions, that the transfer of control wouldn’t create any serious issue for the bonds.
Charlotte City Manager Ron Carlee, however, said the report raised major concerns.
“I think it’s a really cautionary piece,” said Carlee. “We’ve been trying to say that there are implications around the changes that haven’t been well thought out.”
Moody’s said transferring the airport’s ownership wouldn’t cause a major default, but might result in a lesser, technical default.
“Moody’s does not view potential changes to control as an Event of Default in of itself, but acknowledges the open question around technical default,” Moody’s wrote. A technical default could hurt the airport’s credit rating and result in higher borrowing costs.
Carlee said even the possibility of a technical default should give everyone pause.
“You can sort of blow that off and say that’s not important, but when you are working for a perfect credit rating you don’t want any kind of default,” Carlee said.
Moody’s also said that with the upcoming merger of US Airways and American Airlines – which account for about 94 percent of daily flights at Charlotte Douglas – means this is an especially sensitive time to change leaders at the airport.
“Any management instability is particularly challenging now, given the need for strong airport leadership through the merger,” said Moody’s. “Strong management partnerships with the airlines may avert potential negative effects of the merger as the airlines evaluate new route network.”
Orr was removed last month after running the airport for 24 years, following the legislature’s passage of a bill to create an airport authority. Carlee maintains that Orr resigned, but Vinroot said Orr was fired.
In his absence, former assistant aviation director Brent Cagle, who oversaw finances at Charlotte Douglas, has been appointed interim aviation director. If the commission is created, by law Orr would be reinstated as its executive director.
Moody’s said there is little immediate danger of Charlotte losing air service after the merger. Charlotte Douglas has very low operating costs for airlines compared to other hub airports, and there is no “viable regional alternative” nearby to replace the airport as a hub, Moody’s said.
Charlotte’s credit rating reaffirmed
Moody’s also announced on Tuesday that Charlotte maintained its top Aaa credit rating, and that the economic outlook for the city remains stable.
The credit agency cited an influx of new business in Charlotte, such as the relocation of Chiquita and imported jobs from MetLife, as a reason for the city’s strong recovery from the recession and subsequently its high bond rating.
Moody’s listed the Democratic National Convention as a factor that helped the city. The convention led to $91 million in direct spending in the local economy and $163.6 million in total economic impact, according to report by Tourism Economics, a consulting firm.
Mark Vitner, an economist for Wells Fargo, said he wasn’t surprised by Charlotte’s high bond rating.
“Given how hard the economy has been, there’s been good financial, fiscally conservative financial management in the city government,” he said.
Out of the 75 U.S. cities with the largest populations, Charlotte is one of eight to boast a Aaa bond rating from Moody’s, according to a 2012 U.S. Census study. Others include Columbus and Seattle.
Charlotte also boasts a AAA rating from the credit rating agency Standard & Poor’s, the highest rating the firm assigns.
Mecklenburg County also has a Aaa Moody’s rating.