Brussels Airport Company NV/SA · Brussels Airport Company NV/SA Senior ... MOODY'S INVESTORS...

INFRASTRUCTURE AND PROJECT FINANCE

ISSUER IN-DEPTH28 March 2017

RATINGS

Brussels Airport Company NV/SA

Senior Secured (Domestic) Baa1

Senior Secured Bank Credit Facility(Domestic)

Baa1

Outlook Stable

Contacts

Xavier Lopez DelRincon

44-207-772-8652

VP- Sr Credit [email protected]

Andrew Blease 44-20-7772-5541Associate [email protected]

Brussels Airport Company NV/SATraffic Volume Recovery Following 2016 Terrorist AttackShows Resilience of Airport Demand to One-Off Events

Following the terrorist attack of 22 March 2016, three explosions forced the closureof Brussels airport's departure hall, impairing the airport’s ability to process departingpassengers. The airport remained closed for 12 days and operated at below capacity fora total of 72 days. The traffic experience following the airport's reopening shows theimportance of an effective management response and how airport traffic flows can beresilient to one-off events.

» Effective management response led to swift reopening and restoration of airportcapacity. Brussels airport’s management planned and built temporary facilities in orderto reopen the airport just 12 days after the attack. Close cooperation with stakeholders,including airlines and the national air slot coordinator, ensured airport capacity andairline capacity at the airport was optimised and progressively ramped-up.

» Demand at the airport proved resilient as passenger volumes recovered in linewith the restoration of capacity. Airlines played a major role by matching the increasein the infrastructure capacity with increases in airline capacity. Passenger volumesbroadly followed the same evolution and were back to a normalised level from June2016, albeit slightly down from their 2015 record levels. By November the airport hadreturned to year-on-year passenger growth.

» The attacks had a limited financial impact. Good insurance coverage mitigated theimpact of lower traffic and rebuilding costs. As a consequence, the impact on earnings in2016 is expected to be smaller than the decrease in traffic, with EBITDA expected to be c.4% lower than in 2015, compared with a 7% decrease in passenger volumes.

» Airline capacity decreases are unlikely in 2017. The airport's return to year-on-yearpassenger growth in November and the recovery to 2015’s average load factor levelssuggest that airlines are unlikely to reduce capacity in 2017.

» Resilience of transfer traffic suggests continued passenger willingness to useBrussels airport. As transfer passengers could have found travel alternatives thatavoided Brussels airport, the resilience of this type of traffic suggests that the terroristattack has not fundamentally altered the willingness of travellers to use the airport.

» Moody's affirmed Brussels Airport Company NV/SA's ratings in November2016. The affirmation of the ratings recognised the company's resilient operational andfinancial performance in the aftermath of attack, and the expectation that the companywill continue to demonstrate credit metrics commensurate with the current rating.

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1062007

MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE

Terrorist attack impaired Brussels airport's ability to handle departing passengersOn Tuesday 22 March 2016, Brussels airport suffered a terrorist attack that caused 16 fatalities and injured more than 150 people. Theattack was carried out by suicide bombers who detonated two bombs in the airport's departure hall. The airport was swiftly evacuatedand closed to passenger traffic as a large security perimeter was put in place. A review of CCTV footage revealed the existence of athird explosive device, which was later detonated in a controlled explosion.

Although the explosions did not endanger the structural integrity of the departure hall building, they caused significant damage andput the departure hall out of service. As this is a place where essential passenger services, such as ticketing, check-in and baggage dropfacilities are located, its closure effectively impaired the airport's ability to handle departing passenger flows.

Exhibit 1

Location of the three explosions that led to the closure of the departure hall

Source: Brussels Airport Company

Effective management response led to swift reopening of facilities and restoration of airport capacityDelaying the reopening of the airport until the partial or full reconstruction of the departure hall would have meant prolonged closure,due to the extensive work involved. Instead, Brussels airport's management developed a restart plan that involved the construction oftemporary structures to provide check-in facilities, accommodate new security checks and enable passengers to by-pass the departurehall.

Although access to the terminal area was restricted for four days, as the authorities conducted forensic investigations, constructionof temporary tents on the tarmac adjacent to the terminal entrance started only two days after the attack. Progress was swift, andwithin six days, the tents had been built, the equipment and facilities installed and a real-life trial using volunteers had taken place.Authorisation to restart operations came four days later, after concerns over personal safety of security personnel were addressed. On 3April, 12 days after the attack, Brussels airport reopened to passenger traffic.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 28 March 2017 Brussels Airport Company NV/SA: Traffic Volume Recovery Following 2016 Terrorist Attack Shows Resilience of Airport Demand to One-Off Events


As the temporary facilities provided capacity to process only around 8 million departing passengers per annum, or 68% of totaldeparting traffic in 2015, Brussels airport's management worked with airlines and the national slot coordinator to ensure this restrictedcapacity was optimised and progressively ramped-up. At the same time, the airport started reconstructing the departure hall, to ensurepassenger processing capacity would be increased ahead of the expected surge in demand during the summer. On 1 May, the departurehall was partially reopened, providing 111 check-in facilities, and departing passenger processing capacity reached an estimated 90%of its pre-attack level. On 2 June, 72 days after the attack, the departure hall was fully reopened, and, with 144 check-in desks nowavailable, departing passenger processing capacity was back to pre-attack levels.

Exhibit 2

Brussels airport capacity went from 0% to 100% in 72 daysWeekly evolution of estimated capacity to process departing passengers in 2016

Source: Moody’s analysis based on Brussels airport data

Demand at the airport proved resilient, as passenger volumes recovered in line with the restoration ofcapacityDuring the recovery phase, dialogue and partnership work with the airlines played a major role, as airlines matched the recovery ininfrastructure capacity with increases in airline capacity.

Beyond the recovery phase, the analysis of the evolution of airline capacity as measured by a wide array of metrics - aircraftmovements (exhibit 3), destinations served (exhibit 4) and seats offered (exhibit 5) - shows that airlines did not reduce their presenceat Brussels airport once the airport infrastructure capacity was back to pre-attack levels.



Exhibit 3

Airlines did not reduce their capacity at Brussels airport after the recovery phase (i)Weekly aircraft movements at Brussels airport in 2015 and 2016

Data based on full 7 day Monday to Sunday weeks (data does not include truncated weeks at the start and end of each year)Source: Brussels airport

Exhibit 4

Airlines did not reduce their capacity at Brussels airport after the recovery phase (ii)Evolution of total number of destinations served from Brussels airport in 2015 and 2016

Destinations are counted without taking into account weekly frequenciesSource: Brussels airport



Exhibit 5

Airlines did not reduce their capacity at Brussels airport after the recovery phase (iii)Evolution of total weekly seats offered at Brussels Airport in 2015 and 2016


As airport facilities were restored, passenger volumes broadly followed the recovery in capacity and were back to a normalised levelfrom June 2016, albeit slightly down from their 2015 record levels. By November the airport returned to year-on-year growth, withcomparisons aided by the dampening impact that the 21-25 November 2015 Brussels lockdown had on traffic in the previous year. Thismomentum has carried through into 2017, with January passenger numbers 3.5% higher than in the same period of 2016.

Exhibit 6

Demand at the airport proved resilient, with year-on-year growth returning from NovemberTotal weekly passenger volumes at Brussels airport in 2015 and 2016


Given that the negative impact the attack had on traffic was essentially confined to the second quarter of 2016, the cumulative trafficperformance in the second half of 2016 has converged with that of 2015. By the end of the year, the airport had handled 21.8 millionpassengers, 7% fewer passengers than in 2015.



Exhibit 7

The cumulative traffic performance in the second half of 2016 has converged with that of 2015, given the resilience of demand once theairport was back at full capacityEvolution of passenger volumes (cumulative volumes expressed as % change over cumulative volumes in 2015)

Source: Brussels airport

Terrorist attack had a limited financial impact and is not expected to significantly affect future trafficvolumesGood insurance coverage mitigated the impact of lower traffic volumes and rebuilding costsThe 12-day closure of the airport and its subsequent operation at below capacity for nearly two months generated some revenuelosses. In addition, the reconstruction of the departure hall and some additional security measures imposed in the aftermath of theattack resulted in additional, unexpected expenditure.

However, the financial impact was mitigated by the company's property damage and business interruption insurance policies, whichcovered some of the loss of revenues and additional expenditures. Consequently, the percentage fall in earnings is expected to be lessthan the decrease in traffic, with 2016 EBITDA expected to be c. 4% lower than in 2015, compared with a 7% decrease in passengervolumes.

In addition, the regulatory regime that sets Brussels airport's tariffs allows for the recovery of unexpected and uncontrollable increasesin costs, such as those relating to security. We expect that additional recurrent costs will be recovered from 2017 onwards, whilst one-off extra costs incurred in 2016 should be recovered in a phased manner between 2018 and 2021. Excluding these one-off costs, the2016 EBITDA is expected to be less than 1% lower than in 2015.



Airline capacity decreases are unlikely in 2017Even though passenger throughput from June 2016 onwards was slightly below the record levels seen in 2015, airlines are unlikely todecrease their seat offer in 2017 solely as a result of the 2016 attacks. By the end of 2016, average load factors regained their 2015levels and year on year passenger growth resumed, underpinning existing levels of airline capacity, or even justifying further increases.

Exhibit 8

Average load factors regained their 2015 levels by the end of 2016Evolution of average load factor (cumulative since start of the year) at Brussels airport in 2015 and 2016


Exhibit 9

Year on year growth resumed from November onwardsYear-on-year monthly passenger growth at Brussels airport

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

A year-on-year decrease in traffic of 0.4% was recorded in February 2017. However, comparative figures for February 2016 were boosted by the impact of the leap year. Average daily trafficvolumes in February 2017 were, in fact, 3.2% higher than in February 2016.Source: Brussels airport



Resilience of transfer traffic suggests continued willingness of passengers to use Brussels airportAs shown in exhibit 10 below, transfer and transit traffic has been more resilient to the attack than origin and destination traffic. Thisis not surprising, given that transit and transfer passengers do not use the departure hall or its facilities. However, it also suggests thatthe terrorist attack has not fundamentally altered the willingness of these travellers to use Brussels airport, even when alternatives areavailable. Furthermore, with the exception of February 2017, which is affected by a leap year effect, total monthly traffic growth hascontinued to be positive since November 2016.

Exhibit 10

Transfer and transit traffic has been more resilient than origin and destination trafficEvolution of departures (cumulative volumes expressed as % change over cumulative departures in 2015) for transfer and transit and originating traffic


Strong traffic resilience and limited financial impact led to affirmation of ratingsMoody's affirmed Brussels Airport Company NV/SA's ratings in November 2016. The affirmation of the ratings recognised thecompany's resilient operational and financial performance in the aftermath of the terrorist attack, with traffic levels swiftly recoveringfollowing the reopening of the airport and insurance receipts mitigating some of the loss of earnings. In addition, the affirmation ofthe ratings also reflected Moody's expectation that the company will continue to demonstrate credit metrics commensurate with thecurrent rating.



Moody's Related Research

» Rating action: Moody's affirms Brussels Airport Company NV/SA's Baa1 ratings; stable outlook (November 2016)

» Credit opinion: Update to reflect affirmation of the rating (November 2016)

» Issuer comment: Terrorist attack is credit negative but effect will be mitigated by insurance; impact on traffic expected to bemoderate (March 2016)


https://www.moodys.com/research/Moodys-affirms-Brussels-Airport-Company-NVSAs-Baa1-ratings-stable-outlook--PR_357694

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1045627




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Contacts

Xavier Lopez Del Rincon 44-207-772-8652VP- Sr Credit [email protected]

Andrew Blease 44-20-7772-5541Associate [email protected]

CLIENT SERVICES

Americas 1-212-553-1653

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