What Investors need to know about the Massachusetts Port Authority (or any other airport…) Presentation by Betsy Taylor to MAGNY April 4, 2014.

What Investor’s need to know about the Massachusetts Port Authority

(or any other airport…)

Presentation by Betsy Taylorto MAGNY

April 4, 2014

Topics

1. What investors’ should know about airport’s in general?

2. What should investors’ know about Logan Airport?

3. What does Massport’s Director of Finance worry about?

4. Your questions

2

Key Questions

• What is the number of passengers & is that number increasing?

• Is the Airport an Origin/Destination or a HUB?• What is the airport’s service area and what is

that region’s capacity to generate ticket sales?• What is the airport’s competition?• What is the airport’s capital plan?• What are the airport’s debt policies and what

protection is provided by the bond documents?

3

Massport Overview• Massport is a body politic and

corporate and a public instrumentality of the Commonwealth of Massachusetts

• Massport is governed by a seven- member Board appointed by the Governor of the Commonwealth, one of whom shall be the Secretary of Transportation

• Massport owns, operates and manages Boston Logan Airport, Hanscom Field, Worcester Regional Airport, and Port Properties consisting of certain facilities in the Port of Boston and other properties

4

Key elements of Massport’s Credit Strength

• Massport’s credit profile remains strong as management continues to produce sound financial results to maintain AA/Aa3/AA-ratings

• Logan’s traffic is over 90% O&D• Logan added 5 new international carriers in the past year: Copa,

JAL, Emirates, Turkish and Hunan• Boston has a diverse economy with per capital income 30% above

the national average• Manageable $1.2 billion capital plan with only $240M in new debt• Conservative debt profile with level debt payments, no derivatives

and limited use of variable rate debt• Record of proactive management to successfully navigate in the

dynamic airline industry

5

Logan’s passenger growth to reach 31 million passengers by end of 2014

• Factors Contributing to Logan’s Passenger Growth

1. MA Economic Growth: – Employment growth is expected to be 1.4% in 2014 and 1.9% in 2015– MA economic growth, through 2017, is expected to grow 2.7% in real

GDP and 3.6% in Personal Income.

2. Changes in Airline Service– Advanced airline schedules indicate a 2.4% increase in Logan’s seat

capacity during the first half of 2014 – Over the past 4 years, passenger traffic has outpaced the growth in

airline seats

3. Logan Airport’s Regional Passenger Market Share: – Logan has steadily increased its share of the regional market, but at

diminishing rates

6

Source: New England Economic Partnership Nov 2013: MassachusettsSource: New England Economic Partnership Nov 2013: Massachusetts

7

Passenger growth being boosted by JetBlue’s continued expansion at Logan Airport.

Logan Airport passenger growth to reach new record highs in 2014 with nearly 31M passengers

Note: Excludes GA passengers. CY 2013 passenger traffic including GA was 30.2M. Source: Massport and ICF SH&E forecast

8

In 2013, JetBlue Expansion was Largely Responsible for the Capacity Growth at Logan

Note: Top 10 carriers based on scheduled seats for CY2013Source: OAG Schedules

9

Source: Airport Records -12 Months ending Nov 2013 for PVD & MHT; CY 2013 for BOS

In 2013, Logan’s Share of Boston Region Passengers Increased by 0.5 Percentage Points

Total Passengers (BOS/PVD/MHT)

36.7M 36.9M 34.5M 33.0M 34.1M 35.5M 35.3M 35.5M*

2006 2007 2008 2009 2010 2011 2012 YE Nov 2013

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

75.2% 75.9% 75.7% 77.2%80.2% 81.4% 82.7% 83.3%

14.1% 13.6% 13.6% 13.2% 11.5% 10.9% 10.3% 10.1%

10.7% 10.5% 10.7% 9.6% 8.2% 7.6% 6.9% 6.6%

Logan Providence Manchester

Overview of Logan’s recent business activity 30.2 million passengers served by Logan Airport in CY 13, a 3.4%

increase of 983,000 passenger over the previous year.

Airline operations and landed weights increased 1.9% and 3.5%, respectively, in CY 13 to keep pace with passenger demand.

Logan commercial parking revenue increased 3.5% due longer stays and higher Gold Pass revenue.

Rental car transactions days are up 8.2%. In Terminal concession revenues are $1.0 million, or 7% over budget driven by a 5% increase in enplanements and 4% increase in average sales per passenger.

HOV activity is trending ahead with Logan Express up 4.8% over budget and Blue Line T outbound turnstile counts 6.4% ahead of CY 2012.

10

Massport’s 5-year net revenue generates $513 M to fund the Authority’s 5-year capital program

11

$590 Revenue

FY14 FY15 FY16 FY17 FY180

100

200

300

400

500

600

700

800

$88 $99 $118 $115 $125

$99 $101 $95 $109 $109

$403 $424 $441 $459 $473

$590

$624 Revenue $654 Revenue

$683 Revenue

$707 Revenue

Revenue

Debt Service

Days Cash

MPA Expenses in $M$707 Revenue

The Use of Bonds and Existing I & E Balances Fund FY14-FY18 Capital Programs

12

In Million $FY13-FY17

Program(Prior)FY14-FY18

Program(New)

Capital Program Funding SourcesNet Operating Earnings (5 years) 294$ 513$ Prior Year Balances* 98$ -$ GARB Bonds 2010 & 2012 120$ 57$ GARB Bonds 2014 & 2017 118$ 240$ PFC Funding 130$ 126$ FAA & TSA Grants 161$ 186$

Massport Generated Funding 920$ 1,121$

ConRac FundingCFC Bonds & ConRac Pay-Go 193$ 84$

Remaining ConRac Funding 193$ 84$

Massport's 5 Year Capital Program Funding 1,113$ 1,205$

FY14-18 Capital Plan produces financial metrics consistent with Massport’s debt policy

13

Massport's Debt Policy

Goals

FY13 Actual

FY14 Budget

FY15 Forecast

FY16 Forecast

FY17 Forecast

FY18 Forecast

Debt Coverage 1.75 2.47 2.08 2.17 2.44 2.25 2.34Contribution Margin ≥30% 34.90% 31.04% 31.77% 31.88% 32.39% 32.48%Airline Cost/Enplaned Passenger $13.16 $14.59 $14.64 $15.57 $16.03 $16.66Days Cash projected (New Program) 200 395 311 267 222 292 385Operating Ratio ≤70% 61.60% 65.47% 65.07% 64.92% 64.48% 64.37%Note: Operating Ratio is expenses with PILOT/divided by operating revenue*Large Hub Airports

• Credit Rating Agency confidence reflected in Aa3/AA-/AA ratings• $1.6 Billion in debt: 90% is fixed rate• 10% of outstanding debt has been variable rate since 2003• No swaps or swaptions

2013 debt service after the 2012A new issue and 2012B refunding.

14

Massport’s Conservative Debt Structure

Five year Financing Plan Conclusions

15

1. Massport’s Aviation, Port, and Real Estate businesses will grow in 2015:– Logan Airport to reach 31 million passengers in 2014 on the strength of the MA economy, new

international service offerings, and continued growth in the N.E. market share

– Maritime’s financial performance expected to improve from growth in container activity next year (113, 000 to be serviced) as exports to Europe grow and the local economy and employment in MA expands.

– Commercial Real Estate expected to grow $1.5M from higher rents, new investments, and parking which will assist Maritime to meet its capital investment needs.

2. Priority investments and fiscal discipline required to advance Massport’s Ten Strategic goals– Management set a target of 5% budget growth next year, and subsequent years, based passenger

activity, increases in flight operations, our growing infrastructure footprint, more HOV service offerings, real estate business activity, and increased Port operations.

3. Five-year financial plan adheres to Board’s Debt Policy and Preserves Massport AA bond rating – New revenue from rate adjustments for parking, GTU, cruise, and tariffs are essential to generate the

$500M in capital investments incorporated in the FY 14-18 capital program.

– Staff is planning to issue approximately $200 million in new Bonds in July.

What keeps the Director of Finance up at night?

• Impacts of airline mergers – Balancing need for new construction with impacts of vacant gates

• Viability of airline special facility bonds

• How much do we invest to accommodate changing international patterns? e.g: A380

• Shifting attitude of FAA toward PFCs make timely access to those funds challenging

16

• Questions?

• Contact information:– Betsy Taylor– Director of Finance & Treasury– 617-568-1047– [email protected]

17