by Andrew Walden

Did the Airports Division bamboozle Fitch Ratings?

On October 26, Fitch Ratings upgraded over $1B in Airports Division bonds to ‘A’ from ‘A-‘.  At the time, Kurt Yamasaki, Fiscal Management Officer of HDOT Airports Division, explained, “The upgraded rating will translate into millions of dollars in savings through lower interest rates for future bond issuances.” 

The upgrades included “$167 million of outstanding series 2013 lease revenue certificates of participation ….”   According to Investopedia: “A certificate of participation (COP) is a type of financing where an investor purchases a share of the lease revenues of a program….”

This is where it gets interesting.  

With repossessors seizing its airplanes, Island Air filed for bankruptcy protection October 16, 2017.  Ten days later, Fitch’s upgrade stated, “The Airports Division expects near-term traffic results will be better than projected due to Island Air expanding interisland traffic, more than doubling capacity over last year….”  Island Air cancelled all flights and shut down operations on November 10, 2017. 

Perhaps Fitch’s research was conducted before Island Air’s crisis was known? 

No. 

The Airports Division had to have known about financial difficulties at Island Air for several months now.  KHON November 10, 2017 reports, “Island Air’s financials reveal mounting bills with state as largest unsecured creditor:”

Island Air still owes the state Department of Transportation nearly a year’s worth of rent and fees.

The state is the largest unsecured creditor, and as the bills piled up, Island Air pinned its hopes on a rescue loan.

According to court filings, Island Air owed the DOT $1.5 million.

In the last audited airport financials, rent and fees amounted to around $1.8 million for the fiscal year ending June 30, 2016.

According to a budget that Island Air gave the court, they said a deferral agreement had been entered into with the state.

So according to Fitch, the Airports Division “expects near-term traffic results will be better than projected due to Island Air expanding.” 

Yet, at the same time, Island Air had failed to pay $1.5M in back rent to the Airports Division. 

And some of the upgraded bonds were for “a share of the lease revenues”—that Island Air wasn’t paying.

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