Australia Pacific Airports Corp. Ltd.

The stable outlook reflects our expectations of continued growth in passenger numbers, albeit somewhat softer, through Melbourne Airport. We also expect the airport's planned capital works of A$2.5 billion could be spread over a longer period than four years. This should enable the company to maintain FFO to debt metrics of around 10%, although there could be a short period of weakness over the next two years due to a step increase in capital spending. The outlook does not incorporate possible investment in a third runway, given that it is still in the planning stage, nor acceleration of uncommitted projects. Given the minimal rating headroom, an FFO to debt sustaining below 10% will place downward rating pressure. Such a scenario

...Melbourne Airport's strong market position should support long-term passenger growth of 3%-5% per annum.The business fundamentals of Melbourne Airport, the dominant asset of the group (rated entity Australia Pacific Airports Corp. Ltd. [APAC]), remains strong. This position will support annual traffic growth of 3%-5% over the medium to long term. However, we forecast subdued annual traffic growth of 1% in 2020 owing to soft regional and global economic conditions. Growth should recover slowly thereafter. Melbourne Airport's curfew-free operations also support its business compared with its closest peer, Sydney Airport. The planned A$2.5 billion capital expenditure (capex) to 2024 will diminish rating headroom over the next two to three years. APAC's aggressive policy to debt fund up to 100% of capex will increase debt and keep the funds from operations (FFO) to total debt close to 10%, limiting rating headroom. If actual traffic levels exceed our forecasts or the planned capex is spread...

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