Airport System’s $482.9 million of revenue bond debt; The outlook remains
stable

HAWAII (STATE OF) AIRPORT ENTERPRISE
Airports
Hawaii

NEW YORK, June 29, 2012 — Moody’s Investors Service maintains an A2 rating
on the State of Hawaii Airport System’s $482.9 million of revenue bond debt.
The outlook remains stable.

SUMMARY RATINGS RATIONALE

The A2 rating and stable outlook reflect the airport system’s near monopoly
over air travel to and from the islands, improving financial metrics and a
move toward full cost recovery. Moody’s also notes growth in tourism and
hospitality which is driving a recovery of enplanements at the airport.

STRENGTHS:

* Demand for air service is stabilized by Hawaii’s remote location, need for
inter-island travel, and a substantial military and government presence that
requires frequent mainland service

* Position as a premier international tourist destination brings high demand
for overseas flights, but the economy’s reliance on that industry poses
significant risks

* Strong current financial position with low debt and high liquidity provides
the airport financial flexibility, though these strengths are expected to
wane as additional debt is issued

CHALLENGES

* Debt service coverage and unrestricted cash are both expected to decline
substantially over time, but remain within levels commensurate with the
current rating category

* Economic conditions and the failure of Aloha airlines in FY 2008 caused a
sharp reduction in enplanement levels that have not yet recovered

* State has a history of subsidizing airline rates and charges resulting in
lower revenues and modest liquidity declines; this practice did not occur in
FY 2011 or FY 2012

* Airport system has extensive capital needs that will require a sizeable
increase in debt

DETAILED CREDIT DISCUSSION

Enplanements at Hawaii International Airport are beginning to recover after
the economic downturn and failure of Aloha Airlines in 2008. Enplanements
increased approximately 1.3% during FY 2011 and have seen relatively flat
growth of 0.13% for FY 2012 as of March. Enplanement growth for Hawaii is
highly correlated to growth in Hawaii’s tourism and hospitality industry. A
weakened U.S. dollar has allowed growth in this area to drive economic
recovery in the state of Hawaii. February 2012 tourist visitor days were over
8% higher than February 2011. This is equal to the growth exhibited prior to
the 2011 earthquake in Japan.

Debt service coverage at the airport was approximately 1.80 times, on a net
revenue basis, and approximately 2.04 times on a bond ordinance basis for FY
2011. Bond ordinance coverage is expected to fall to 1.52 times in 2012 and
to the range of 1.30 and 1.40 times for the next five years. This expected
decrease in debt service coverage is attributable to increases in debt
service as well as higher operating expenses associated with planned new
facilities. The airport moved to a full cost recovery system in 2011 and is
projecting cost per enplanement to be approximately $8.64 for FY 2012.
Moody’s views the move to full cost recovery as a key credit positive for the
airport. Days cash on hand for FY 2011 has improved to approximately 960 days
from an already strong 831 days in 2010. Using April 30, 2012 cash balances,
days cash on hand is approximately 894 days. Moody’s 2010 U.S. Airports
sector median was 489 days. The rise in cash in 2011 is attributable to
higher than anticipated operating revenues as well as delays in planned
capital improvement expenditures.

The airport is progressing with its planned capital improvement program and
currently estimates total costs to be approximately $1.5 billion, of which
$650 million was spent as of March 2012. The estimate of $1.5 billion is
slightly higher than the $1.3 billion planned in 2012. This difference is due
in part to a change in scope of a runway program at Kahului. The airport is
also in discussion with signatory airlines regarding an additional group of
capital projects with an estimated cost of $313 million. This estimate does
not include projects to be funded with CFC revenues.

What could change the rating – UP

Continued strong enplanement levels and full cost recovery through airline
rates and charges that sustains net revenue debt service coverage above 1.75
times, while maintaining high internal liquidity to manage operational risks
and financial risks could put upward pressure on the rating.

What could change the rating – DOWN

An inability or unwillingness by the airport system to fully recover costs
from the airlines that reduces unrestricted liquidity balances below the
Moody’s U.S. airport median could negatively pressure the rating.

KEY INDICATORS

Type of Airport: O&D

FY2011 Enplanements: 15,282,000

5-Year Enplanement CAGR 2007-2011: -1.6%

FY 2011 vs. FY 2010 Enplanement growth: 1.3%

% O&D vs. Connecting, System, FY 2011 (5 YR AVG): 98% (98%)

% Inter-island vs. Overseas, FY2011: 34.8%

Largest Carrier by Enplanements, System (share): Hawaiian (47.6%)

Airline Cost per Enplaned Passenger, FY 2011 (5 YR AVG): $8.77 ($6.64)

FY 2012 projected Airline Cost per Enplaned Passenger: $8.64

Debt per Enplaned Passenger, FY 2011 (5 YR AVG): $56 ($39)

Bond Ordinance Debt Service Coverage, FY 2011: 2.04x

Utilization Factor, FY 2011: 10.91

Outstanding Bonds:

Series 2010A (Non-AMT): $274.4 million

Series 2010B (AMT): $95.7 million

Series 2011 (AMT): $112.8 million

ISSUER CONTACT

Mr. Ross Higashi

Fiscal Management Officer

Phone: (808) 838-8646

The principal methodology used in this rating was Airports with Unregulated
Rate Setting published in July 2011. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.

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