(Editor's Note: Rick Lord and Steven Bullock at Trucost (part of S&P Global) and Alka Dagar of S&P Global Market Intelligence also contributed to this article.)
Physical climate risks are key credit considerations for airports given their long-term nature, capital intensity, and fixed locations, which cannot be diversified away. Adaptation measures help build resilience but may be expensive and payback is not always immediate.
Here, we look at climate scenarios using Trucost's Climate Change Physical Risk data that are not part of our base case for ratings on airports. Better data improves our understanding of the possible exposure of airports and can enrich dialogue with issuers about adaptation actions and possible influence on credit quality.
Nonmitigated exposure could weaken our assessment of airports' long-term fundamentals and competitive position, while adaptation actions could lead to more highly leveraged balance sheets in the absence of support provided by regulatory frameworks or other stakeholders. Both can weigh on our views of credit quality.
Asia-Pacific airports are the most exposed to heat waves under the most extreme RCP8.5 in 2050. The number of heat wave days could increase by up to three months a year for the most exposed airports. Heat waves can damage infrastructure and cause disruption, as flight take-off weight restrictions apply. In addition, wildfire exposure is rising, specifically on the U.S. west coast and in Australia.
Storms are already an important challenge for airports in North and Central America as well as Asia-Pacific. Scientists generally expect an increase in the frequency of more intense storms, though predicting their precise frequency, timing, and impact on assets—including airports not captured in this analysis—is difficult.
Exposure to flooding and sea level rise is a significant long-term risk (beyond 2050). U.S. airports rank among the most exposed under the RCP8.5 scenario. San Francisco International Airport (A/Negative) is highly exposed to flooding, but its plan to build a sea wall is expected to provide protection to the year 2085.
A key indirect risk for airports is the impact shifting weather conditions may have on travel demand. Cooler regions could gain increasing favor in the hotter summer months.
Here, in an exploratory analysis, S&P Global Ratings tests the application of Climate Change Physical Risk data from Trucost in an analysis of 367 major global airports. We explore how the data might enhance our dialogue with rated airports regarding future physical climate risks, the possible range of exposures, and how airports have adapted or plan to adapt. Trucost's data is derived from publicly available information, licensed datasets, and its own models.
There are some inherent uncertainties associated with climate science, including those related to the crystallization, frequency, and severity of climate and extreme weather risks--like water stress, wildfire, and sea level rise. Given these uncertainties, we do not consider the scenarios we apply in this report as part of our base case for rated airports. However, when crystalized, they can have high impact on credit ratings. For example, following the impacts of Hurricane Katrina on Aug. 29, 2005, we eventually lowered the S&P Underlying Rating (SPUR) on New Orleans Aviation Board (NOAB) by six notches, to 'BB' from 'A', and the SPUR on NOAB's stand-alone passenger facility charge bonds by two notches, to 'BBB' from 'A-'. Physical damage was limited, but due to NOAB's exposure to local and regional economic trends, the rating actions reflected concerns regarding the pace of recovery in the regional economy, including in employment and tourism and their impact on air travel demand. Given NOAB's largely fixed-cost structure and limited flexibility in adjusting rates, it was our view that this indicated a weakened demand and financial profile.
While some risks may not be credit factors now, their potential unmitigated consequences could increase over time, leading to increased uncertainty for revenues, higher operating costs, and more volatile earnings. As such, they could weigh on our assessment of airports' long-term fundamental business and competitive positions. These could impact our assessment of the business risk profiles of those more exposed airports where the risks are not sufficiently mitigated by other credit factors, such as capital and financial planning and capital investments. These could lead to more highly leveraged balance sheets in the absence of support provided by regulatory frameworks or other stakeholders.
The exposures to potential physical climate risks we describe do not take into account adaptation efforts that airports have implemented or may implement, which could materially reduce the physical risk. A 2013 survey of 35 European airport operators and air navigation service providers found that over 80% of respondents considered that resilience measures to adapt to climate change would be necessary now or in the future, but less than half had begun planning for adaptation and only four had produced adaptation plans.
Applying multiple scenarios has the potential to enable a better understanding of the range of possible exposures that airports face. That knowledge may facilitate and enrich the dialogue with airports about their views of climate risks, including what measures (if any) they are taking or plan to take to build resilience to current and future climate physical risks.
This is particularly relevant for airports operating under long-term concessions (50+ years) and/or that are funded based on highly leveraged long-term project financings. These airports have no flexibility under their transaction structures to respond to unpredictable risks or to perform investments to adapt. If we were to believe that these stresses are realistically likely to occur or could have a severe impact, we could model the impact of the risks in our downside case to test availability of adequate liquidity to ensure timely debt service upon crystallization of the event. If likelihood of a stress event occurring sufficiently differentiates the airport from its peers, we would notch down to reflect that risk regardless of the financing structure applied.
Ultimately, if the exposures described by climate scenarios are viewed to be material or point to major uncertainties and thus risk, they can weigh on our views of current and future credit quality, and thus airports' cost of capital.
Better disclosure and enhanced analytics can provide greater transparency for market participants to identify and analyze potential longer-term risks and facilitate a dialogue with rated airports that are potentially exposed. Increased transparency surrounding these risks also presents an opportunity for issuers to demonstrate the benefits of existing or planned adaptation actions. For example, even though an airport may have a comparatively high degree of exposure to physical climate risks as identified by metrics, a proactive, flexible climate adaptation plan could serve to support credit quality if the plan is adhered to and costs associated with implementing the plan are transparent, well known, and affordable. Enhanced analytics and metrics may enable us to gauge managements' proposed, or in-progress, actions to adapt to or mitigate physical climate risks and compare those actions to the potential magnitude, timing, and expected duration of physical climate risks.
We have long articulated the impacts of physical risks, themselves manifesting as chronic, longer-term shifts in climate patterns or acute risks from extreme weather events (see the Related Research at the end of this article) and described how our criteria and ratings can capture the dual threat of both chronic and acute physical risks when those risks are sufficiently visible and certain and actually or potentially material (see "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," Sept. 12, 2019, and "How Environmental And Climate Risks And Opportunities Factor Into Global Corporate Ratings – An Update," Nov. 9, 2017).
Climate Projections And Physical Climate Risk Dataset
While most airport operators are familiar with the impacts of acute risks (such as extreme weather events, including storms), for some, other significant physical risks may emerge over the medium to long term, timescales that are sometimes greater than the time frame of many issuers' financial forecasts. At the same time, the precise timing, frequency, and severity of impacts remain uncertain. This uncertainty presents a challenge to understanding the potential impacts of physical climate risks and the steps required to build resilience. Scenario analysis has long been used as a tool to build organizational resilience and to identify risks and opportunities before they emerge. However, its use for assessing climate-related risks and opportunities by many airports is not common or is relatively new, particularly for smaller entities. As global economies begin their recovery following the COVID-19 pandemic, it is argued by some that airports must take positive action to realign themselves to a low-carbon future.
The climate scenarios (or Representative Concentration Pathways - RCPs) describe possible pathways of future Greenhouse Gas (GHG) emissions and were produced by the Intergovernmental Panel on Climate Change (IPCC) as used in their Fifth Assessment Report (AR5). In our analysis we apply three of the scenarios (RCP2.6; RCP4.5, RCP8.5 – see box) to gauge how airports' exposure to a range of climate hazards, including chronic risks like heat waves, water stress, and sea level rise and acute risks such as flooding (among others), may evolve to the year 2050. For many airports, this is well within the financial horizon of long-term debt to finance capital investment at these facilities. Due to limited data availability, we do not apply RCP6.0.
What Are Representative Concentration Pathways?
- RCP8.5 is the high emissions scenario, consistent with a future where no further policy action is taken to reduce GHG emissions. It is considered an extreme business-as-usual scenario resulting in an average global temperature increase of 3.7°C (likely range 2.6°C to 4.8°C). Countries' current commitments to reduce GHG emissions, as captured through Nationally Determined Contributions (NDCs), align to a global temperature increase of more than 3°C by the end of the century.
- RCP6.0 is a high-to-moderate emissions scenario where GHG emissions peak around 2060 and then decline. An average global temperature increase of 2.2°C is projected (likely range 1.4°C to 3.1°C).
- RCP4.5 is a moderate emissions scenario consistent with a future with relatively ambitious emissions reductions with a slight rise to 2040 and then a decline. This scenario falls short of the Paris Agreement aim of limiting global temperature rise to "well below" 2°C, with a projected average temperature increase of 1.8°C (likely range 1.1°C to 2.6°C).
- RCP2.6 is the only IPCC scenario that aligns with the Paris Agreement target to limit average increase in global temperature to well below 2°C. This scenario is consistent with ambitious GHG emission reductions, peaking around 2020, then declining on a linear path to become net negative before 2100. An average global temperature increase of 1°C is projected (likely range 0.3°C to 1.7°C).
Our analysis also focuses on nearer timepoints (for example, 2030), however, a certain amount of change is locked in due to the lag in the climate system owing to historic GHG emissions. There is therefore sometimes little difference between the RCPs (and resulting physical risk scores) for pre-2050 timepoints. Further, and as noted earlier, uncertainty exists around the precise timing, severity, and frequency of physical climate risks, the modeling of some hazards (climate scientists have greater certainty over the direction and magnitude of change in average temperature than, for example, wind), as well as how issuers choose (or not) to adapt. Given the effect of this lock-in and uncertainty, less emphasis should be placed on physical risk scores for pre-2050. Further, many airports have low or moderate exposure to physical climate risks so this article focuses on those most highly exposed, both in absolute terms (that is, highest scores) and those airports that may experience the greatest change in exposure over time.
Note also in our analysis, exposure to hurricanes is taken as present day (that is, 2020) as reliable projections for this particular hazard are unavailable. Despite this, many scientists expect an increase in extreme wind speeds in the future over Europe, parts of Central and North America, the tropical South Pacific and the Southern Ocean, a poleward shift of storm tracks, and associated changes in wind patterns.
What Do The Physical Risk Scores Mean?
Trucost's Climate Change Physical Risk data assigns normalized scores from 1 (lowest risk) to 100 (highest risk), representing exposure of a given location to different climate hazards including heat waves, cold waves, flooding, hurricanes, sea level rise, water stress, and wildfire. The physical risk score is intended to represent the relative level of risk for each hazard at each location relative to global conditions and is available for all four RCPs and timescales up to 2050.
We define high physical risk as scores greater than 70 out of 100 in Trucost's Climate Change Physical Risk data.
Asia-Pacific Airports Are The Most Exposed To Heat Waves
The top 10 most exposed major airports in the Asia-Pacific yield an average score of 92 out of 100, followed by major airports in North America (average score 72 out of 100). Less exposed are airports in LATAM (average score 44 out of 100), Africa (average score 46 out of 100) and Europe (only 24 out of 100). In 2030 under RCP8.5, average heat wave scores are around half that of those in 2050 under the same scenario.
The top 10 most exposed major airports in Asia-Pacific have higher average physical risk scores for heat waves in 2050, in the absence of adaptation measures, under both high stress (RCP8.5) and low stress (RCP2.6) climate scenarios. In Asia-Pacific, Francisco Bangoy International (Philippines), Male International (Maldives), and Kuala Lumpur (Malaysia) score a maximum of 100 on our scale in 2050 under RCP8.5, and these airports could expect around an extra three months of heat waves in 2050 under this scenario or about an extra three weeks of heat waves under a low stress scenario (RCP2.6; see table 1).
Heat waves, as well as rising average temperatures, impact airport operations in a number of ways. For example, flights may be grounded or disrupted due to the possible exceedance of maximum operating temperatures (such as happened with flights at Phoenix Sky Harbor International Airport in the U.S. in 2017). This is particularly a problem for commercial aircraft that may be subject to take-off weight restrictions (higher air temperatures decrease the air's density making it harder for planes to take off) and in particular for airports with shorter runways and/or at high elevations. Take-off weight restrictions mean that aircraft can carry less passengers and/or cargo, increasing operational costs. A recent study by Pek and Caldecott (2020) derived possible weight reduction requirements during heat days for a Boeing 737-800 of 10,000 lbs. (4,536 kg) or 15,000 lbs. (6,804 kg). Such restrictions translated to a 28% and 43% reduction, respectively, in passenger capacity on this aircraft (seating capacity 160 passengers). Further, disruption may also cascade to other (that is, regional) airports, causing delays and indirect financial losses, even for airports not directly exposed to this risk.
|Major Asia-Pacific Airports With High Exposure (Physical Risk Scores Of 70 Or Greater) To Heat Waves And Equivalent Change In Heat Wave Days In 2050 Under RCP8.5 And RCP2.6|
|Airport||Country||Baseline heat wave score||Heat wave score in 2050 under RCP8.5||Heat wave score in 2050 under RCP2.6||Change in heat wave days by 2050 under RCP8.5||Change in heat wave days by 2050 under RCP2.6||S&P Global Ratings’ rating|
|Francisco Bangoy Int’l||Philippines||23||100||39||+100||+21||N/A|
|Kuala Lumpur Int’l||Malaysia||29||100||50||+92||+27||N/A|
|Guam International Airport||Guam||37||93||52||+73||+20||BB+/Negative|
|Sultan Hasanuddin Int’l||Indonesia||27||89||43||+81||+21||N/A|
|Brunei Int’l||Brunei Darussalam||20||87||38||+87||+23||N/A|
|Katunayake Int’l||Sri Lanka||25||74||38||+64||+17||N/A|
|N/A—Not applicable. Data as of Sept. 15, 2020. Sources: S&P Global Ratings, Trucost.|
Higher temperatures can also damage airport infrastructure, including heat damage (and/or premature aging) to tarmac or aprons, as well as airside equipment, which may require greater cooling, particularly during the summer months. Demand for extra cooling in airport terminals and site facilities may increase energy costs, require more regular maintenance and/or warrant additional investments to avoid overheating, as well as present health and safety challenges to staff and passengers.
Many North American airports are also highly exposed to heat waves in 2050 under a high stress scenario (RCP8.5) but are moderately exposed under a low stress scenario (RCP2.6; see table 2). Norman Manley International (Jamaica) is the most highly exposed major North American airport to heat wave risk under either climate scenario and may see around an extra two months of heat waves in 2050 (or about an extra month of heat waves under RCP2.6). Aeropuerto Internacional de Tocumen (Panama; BBB+/Negative) may expect to see the greatest change in exposure to heat waves in 2050 under a high stress climate scenario (RCP8.5), equivalent to about an extra 10 weeks of heat waves. Heat wave scores in 2030 under RCP8.5 for major North American airports are broadly similar to those under RCP2.6 in 2050.
In the U.S., no major airports are highly exposed (no airports receive a score of 70 or greater on our 1-100 scale) to heat wave risk in 2050 under either climate scenario. However, Honolulu International Airport (Hawaii Airport System; A+/Negative), Miami Dade International Airport (A-/Negative), Palm Beach International Airport (A/Negative) and Fort Lauderdale Hollywood International Airport (A/Negative) are moderately exposed receiving physical risk scores of 50 or more in 2050 under a high stress climate scenario (RCP8.5). These airports may expect to experience an extra five weeks of heat wave conditions (this declines to around two weeks under RCP2.6).
|Major North American Airports With High Exposure (Physical Risk Scores Of 70 Or Greater) To Heat Waves And Equivalent Change In Heat Wave Days In 2050 Under RCP8.5 And RCP2.6|
|Airport||Country||Current heat wave score||Heat wave score in 2050 under RCP8.5||Heat wave score in 2050 under RCP2.6||Change in heat wave days by 2050 under RCP8.5||Change in heat wave days by 2050 under RCP2.6||S&P Global Ratings’ rating|
|Norman Manley Int’l||Jamaica||35||87||56||+68||+27||N/A|
|Owen Roberts Int’l||Cayman Islands||36||83||56||+61||+26||N/A|
|Aeropuerto Internacional de Tocumen S.A.||Panama||25||82||37||+74||+16||BBB+/Negative|
|De Las Americas Int’l||Dominican Republic||30||77||47||+61||+22||N/A|
|Luis Munoz Marin||Puerto Rico||29||75||48||+60||+25||N/A|
|General Juan N Alvarez Int’l||Mexico||26||73||36||+61||+13||N/A|
|N/A—Not applicable. Data as of Sept. 15, 2020. Sources: S&P Global Ratings, Trucost.|
In Latin America, three major airports face high exposure to heat waves in 2050 under a high stress climate scenario (RCP8.5), although exposure is muted under RCP2.6 (Table 3). Augusto Severo International Airport (Brazil), Eldorado International Airport (Colombia), and Velazco Astete International Airport (Peru) may expect between eight to 12 weeks of extra heat waves in 2050 under RCP8.5 or about an extra three weeks of heat waves under RCP2.6. There are relatively fewer major airports in Latin America nations. However, Argentina, Chile, and Uruguay are the only countries in the region that contain major airports with low exposure (scores are less than 30 on our 1-100 scale) to heat waves in 2050 under RCP8.5.
|Major Latin America Airports With High Exposure (Physical Risk Scores Of 70 Or Greater) To Heat Waves And Equivalent Change In Heat Wave Days In 2050 Under RCP8.5 And RCP2.6|
|Airport||Country||Current heat wave score||Heat wave score in 2050 under RCP8.5||Heat wave score in 2050 under RCP2.6||Change in heat wave days by 2050 under RCP8.5||Change in heat wave days by 2050 under RCP2.6||S&P Global Ratings’ rating|
|Augusto Severo Int’l||Brazil||28||92||47||+83||+25||N/A|
|Velazco Astete Int’l||Peru||19||74||34||+72||+20||N/A|
|N/A—Not applicable. Data as of Sept. 15, 2020. Sources: S&P Global Ratings, Trucost.|
Major airports in Africa have moderate exposure to heat waves in 2050 under RCP8.5, with Lagos Murtala Muhammed Airport (Nigeria) the most exposed (68 out of 100), followed by Moi International Airport (Kenya) (62 out of 100) and Kotoka International (Ghana) (60 out of 100).
Almost all major European airports have low exposure (scores are less than 30 out of 100) to heat waves in 2050 under a high stress climate scenario (RCP8.5).
Lastly, shifting weather patterns may lead to a change in demand from air passengers, with cooler regions gaining increasing favor in the hotter summer months. Indeed, climate projections for many global regions, including Asia-Pacific and the Mediterranean, suggest an increase in heat wave frequency while more temperature extremes should also be expected.
Climate Change May Also Benefit Some Airports
Exposure to cold waves reduces significantly to midcentury under all scenarios owing to warmer temperatures in many regions. Reduced exposure to cold waves may lower airports' operational costs and disruption related to snow, ice, and severe frost events in affected territories.
In addition, increasing temperatures may lead to growth and change in passenger demand for new and emerging destinations, changing seasonality (particularly longer summers) may present retail opportunities, while warmer temperatures may also help to reduce energy demand and costs for winter heating. The extent to which this may be outweighed by an increase in cooling demand in summer remains uncertain.
We do not factor these opportunities into ratings given the uncertainties, including the precise timing and geographic areas that may benefit from the crystallization of opportunities that may emerge due to climate change.
U.S. Airports Face Increasing Exposure To Flooding And Sea Level Rise
U.S. airports, including Jacksonville International and Baltimore/Washington International Airport (A/Negative) are highly exposed to future sea level rise in the absence of adaptation measures, with physical risk scores of 100 (the highest score on our scale) in 2050 under RCP8.5. Both airports are also highly exposed under a low stress climate scenario (RCP2.6) with scores of 100 and 80, respectively. Washington National Airport may also see the greatest increase in exposure to sea level rise to midcentury under RCP8.5. Scores in 2030 under RCP8.5 are identical to those in 2050 under a low stress climate scenario (RCP2.6).
San Francisco International Airport (A/Negative) is highly exposed to coastal flooding, with a score of 77 on our 1-100 scale under both RCP8.5 and a moderate scenario (RCP4.5). To combat this issue, the airport last year announced a project to build a sea wall around its 10-mile perimeter at a cost of $587 million. The sea wall will provide protection against sea level rise and storm surge, equivalent to those projected to the year 2085. In addition, Airport Authority Hong Kong (AA+/Stable), which was constructed on land reclaimed from the sea, incorporated exposure to physical climate risks in designing its third runway. The third runway is bounded by about 13.4 km of sea wall, which has height of over 6.5 meters above sea level, and provides protection from extreme tides, storm surge, and flooding.
Given the nature of chronic risks, such as sea level rise and coastal flooding, exposure to these hazards (and corresponding physical risk scores) is likely to increase toward the end of the century owing to the lag in the climate system from historic GHG emissions. Indeed, IPCC's end-of-century sea level rise projections in their Fifth Assessment Report, suggest an increase in Global Mean Sea Level (GMSL) of up to 0.8 meter under RCP8.5 (compared with 1986-2005), or about half this increase to 2050. The rate of GMSL rise is much lower under RCP2.6 (estimated at 4-9 millimeters a year) than RCP8.5 (estimated at 10-20 millimeters a year). Therefore, the use of end-of-century projections, particularly for at-risk locations, will likely yield higher physical risk scores.
Other international airports that could be further exposed to flooding and sea level rise when taking a very long term (end of century) view include several airports in Asia-Pacific, including Shenzhen Bao'an International Airport and Yancheng Airport (China) and Ramsar International Airport (Iran), in Europe, Kalundborg Airport (Denmark), Amsterdam Schiphol Airport (Netherlands) and in North America, Vancouver International Airport (Canada).
Hurricanes Remain A Challenge For Airports In North American and Asia-Pacific
Acute events, such as storms (including hurricanes, cyclones, and typhoons), pose a particular challenge to airports, causing major disruption and damage. While the global frequency of hurricanes and tropical cyclones has remained steady since at least the 1980s, there can be significant interannual and multidecadal frequency variability across the globe. This variability presents a significant challenge for disaster preparedness and mitigation activities. Moreover, the National Oceanic and Atmospheric Administration (NOAA) and other scientists suggest that the indirect impacts of hurricanes, such as storm surge and freshwater flooding, are generally the cause of most damage to assets (including infrastructure, businesses, and properties) and loss of life.
Given the highly localized nature of windstorm events, as well as the variability already mentioned, it is challenging to model projections in future hurricane activity. It may also be the case that some airports not mentioned in this article remain exposed or may become exposed for this reason. The integration of adaptation measures over time to mitigate risks will also reduce exposure and improve resilience to such events. Despite this uncertainty, scientists suggest that most regions can expect a reduction in the overall number of storms, a reduction in the number of weaker storms in most areas, and an increase in the frequency of more intense storms. There is agreement among many commentators that mean maximum wind speeds will likely increase as well as rainfall rates associated with such events. This is significant as more intense and frequent storms, including hurricanes, may disrupt flight schedules by making weather conditions less predictable.
According to the U.S. Bureau of Transportation Statistics, of the 720 million passengers in the U.S. that took domestic flights in 2017, about one-fifth experienced a delay with extreme weather responsible for around one-third of these delays. Another study by Borsky and Unterberger (2019) has suggested that rain (and also snowfall) lead to additional departure delays of 10 to 23 minutes depending on the intensity of the weather event. According to Forbes (2008) and Gayle and Yimga (2018), passengers value the avoidance of a flight delay at around USD1.50 per minute. Assuming all weather-related delays in the U.S. in 2017 were due to heavy rain (that is, delays range from 10 to 23 minutes), this corresponds to costs of between $670 million and $1.54 billion (see Borsky and Underberger, 2019).
Given the uncertainty associated with projections of hurricane intensity and frequency, as well as storm tracks, we consider present day exposure to this hazard in our analysis. Table 4 presents major North American and Asia-Pacific airports with high exposure to hurricane risk under a baseline (present day, that is, 2020) scenario. Six major North American airports receive a physical risk score of 100 to this hazard, the highest available score on our scale while three major Asia-Pacific airports also receive the same score. All European, Latin America, and African airports have low exposure to this hazard due to the geographic distribution of hurricane events.
Of our rated major airports, hurricane exposure is high (scores are greater than 70 out of 100) for Guam International Airport (Guam) (BB+/Negative) in Asia-Pacific, and two airports in North America (Miami International Airport [A-/Negative] and Palm Beach International Airport [A/Negative] in the U.S.), which all receive a maximum score of 100 under a baseline (present day) scenario. In addition, George Bush Intercontinental Airport (U.S.) (Houston Airport System; A/Negative) is highly exposed to hurricane risk with a score of 74 out of 100 on our scale.
|Major North American And Asia-Pacific Airports With High Exposure (Physical Risk Scores Of 70 Or Greater) To Hurricanes Under A Baseline Scenario (2020)|
|Region/Airport||Country||Hurricane score in a baseline scenario (2020)||S&P Global Ratings' rating|
|Princess Juliana Int’l||Sint Maarten (Dutch part)||100||N/A|
|Palm Beach Int’l||U.S.||100||A+/Negative|
|José Martí Int’l||Cuba||100||N/A|
|Los Cabos Int’l||Mexico||100||N/A|
|Owen Roberts Int’l||Cayman Islands||97||N/A|
|George Bush Intercontinental||U.S.||74||Houston Airport System; A/Negative|
|Ninoy Aquino Int’l||Philippines||100||N/A|
|Guam International Airport)||Guam||100||BB+/Negative|
|Data as of Sept. 15, 2020. Sources: S&P Global Ratings, Trucost.|
Wildfire Risks Are Specific To U.S. West Coast And Australia
Three rated airports in North America (Sacramento International [A/Negative], Salt Lake City International Airport [A/Negative] and Sky Harbor International Airport [A+/Negative]) are highly exposed to wildfire risk in 2050 and 2030 under RCP8.5, with maximum scores of 100. Elsewhere, Australia Pacific Airports (Melbourne) Pty Ltd. (BBB+/Negative) may be moderately exposed to wildfire risk, with a score of 61 out of 100 in 2050 under a high stress scenario (this reduces to a score of 55 in 2030 under the same scenario).
Exposure Is Greatest To Water Stress Although Less Material
Of all modeled hazards, exposure is greatest (scores are greater than 70 out of 100) to water stress affecting almost two-thirds (225 or 61%) of major airports globally. A greater score on this scale means that water demand is likely to outstrip the renewable supply, and so water resources could deplete over time. This is problematic for those countries that draw significant resources from those with greater supply and may necessitate a shift toward groundwater supplies when surface water supplies decline, increasing airports' operational costs.
Despite significant exposure to water stress, airports are not typically high water users. However, increasing water scarcity and drought severity and frequency, particularly in already water-scarce regions, may exacerbate exposure to this hazard and increase costs in the absence of adaptation measures. Large developments co-located close to airports could lead to significant impacts, while increasing water scarcity may increase airports' operational costs and facility development.
Although water stress is generally a less material risk for airports given that airports are not high water users, rated airports are more exposed (scores are higher) to water stress in North America than other global regions in 2050 and 2030 under a high stress climate scenario (RCP8.5). In total, eight airports in Asia-Pacific and eight in Europe have high exposure to water stress (in each region, seven of the eight airports score a maximum of 100 on our scale), while 27 airports in North America are highly exposed (all with maximum scores of 100). In contrast, only one airport in Latin America (Carrasco International – Uruguay) is highly exposed to water stress risk in 2050 under RCP8.5, with a score of 78 out of 100.
Early Adaptation Measures To Build Resilience Is A Key Credit Mitigant
Environmental risks, including current and potential future physical climate risks, are a key credit consideration for airports given their long-term nature, capital intensity, and fixed locations where risk cannot be diversified away. Despite this, adaptation measures exist that may help build resilience to the impacts of extreme weather and long-term climate change. For example:
- Hard engineering measures, which tend to be more costly, include (but are not limited to) the installation of new (or bigger) flood walls or natural barriers, new HVAC (heating, ventilation and air conditioning) systems to better cool buildings and equipment, increasing surface drainage capacity, reinforcing structures to withstand stronger winds, use of water-resistant building materials to prevent water damage or ingress, construction of buildings on floating structures or stilts, elevating critical equipment or facilities above future flood levels and building longer runways (although this may not always be possible or effective); and
- Soft measures including (but not limited to) changes to policies, the development of strategies to increase coping capacity, such as introducing improved design standards that limit development within exposed areas, engagement with key stakeholders, more frequent maintenance (such as resurfacing), implementation of flood management or stormwater impact plans, drought or water conservation plans, changes to flight schedules to take advantage of cooler temperatures and development of early warning systems for heat waves, floods, or heavy precipitation (that is, airport collaborative decision making or A-CDM) to proactively manage demand during a severe weather event).
Indeed, many global airports are (or have) undertaken actions to build resilience to physical climate risks. In a recent paper, Pek and Caldercott (2020) provide some examples:
- Kansai International Airport (Japan), built on reclaimed land, has spent more than $150 million raising its sea wall, and is using larger pumps to drain runways of heavy rain and raising the airport's structural columns to reduce exposure to sea level rise;
- San Francisco International Airport (A/Negative) last year announced, as highlighted earlier, a $567 million project to build a sea wall around its perimeter, providing protection against sea level rise and storm surge, equivalent to protection to the year 2085;
- Singapore's Changi Airport raised the level of a 1 km stretch of road, which hugs the shoreline of the Changi Beach, to act as a levee for flood protection. Furthermore, the Changi East site will be built around 18 feet (5.5 meters) above mean sea level while additional drains will be used to improve flood resilience of the airport site;
- Airport operator Avinor has conducted a comprehensive climate change risk assessment of its 45 airports and connected navigation systems, which are particularly exposed to extreme weather including storms, and implemented improved design criteria for runways (which specify a base height of approximately 23 feet or 7 meters above mean sea level) and buildings; and
- Airport Authority Hong Kong (AA+/Stable) works closely with its partners, including Hong Kong Observatory and Air Traffic Control, to use real-time weather monitoring to assess the potential impact of prospective extreme weather events on its operations. This allows the airport to implement flight rescheduling ahead of such events as well as communicate with stakeholders, including the public, in anticipation of disruptive weather events.
Building resilience requires increased expenditure (which may be costly), both via operating costs and capital investment, and the payback might not be realized for several years, or decades. If increased expenditure is not covered by increased revenue, perhaps by a regulatory settlement, this could lead to greater leverage and weaker credit risk metrics, at least in the short term, thus potentially weakening overall credit quality and thereby making access to finance more difficult and costly. On the other hand, acute extreme weather-related event risks can weaken credit quality through the cost of unexpected disruption, emergency adaptation and insurance, as well as the risk of losing revenue due to weather-induced delays and closures, and the resultant damage to the airport's reputation. This exploratory physical climate risk analysis, which is cognizant of the inherent natural uncertainties associated with climate science, has the potential to enhance our dialogue with rated airports regarding future physical climate risks, the possible range of airport level exposures, and how airports have adapted or plan to adapt to current and future climate physical risk.
Related Research And Criteria
S&P Global Ratings research
- Better Data Can Highlight Climate Exposure: Focus On U.S. Public Finance, Aug. 24, 2020
- Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020
- U.S. Municipal Sustainable Debt and Resilience 2020 Outlook: Sprouting More Leaves, March 4, 2020
- Space, The Next Frontier: Spatial Finance And Environmental Sustainability, Jan. 22, 2020
- European Airports Prepare For Take-Off On Climate Change, Nov. 21, 2019
- 2019 Update Of Institutional Framework For U.S. Local Governments, Oct. 22, 2019
- The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis, Sept. 12, 2019
- Climate Change: Can Banks Weather The Effects? Sept. 9, 2019
- When U.S. Public Finance Ratings Change, ESG Factors Are Often The Reason, March 28, 2019
- For Water Utilities, ESG Is Just Business As Usual, Dec. 12, 2018
- Can U.S. Utilities Weather The Storm? Nov. 8, 2018
- Through the ESG Lens: How Environmental, Social, And Governance Factors Are Incorporated Into U.S. Public Finance Ratings, Oct. 10, 2018
- How Our U.S. Local Government Criteria Weather Climate Risk, March 20, 2018
- Credit FAQ: How Does S&P Global Ratings Incorporate Environmental, Social, And Governance Risks Into Its Ratings Analysis, Nov. 21, 2017
- Credit FAQ: Understanding Climate Change Risk And U.S. Municipal Ratings, Oct. 17, 2017
- The ICAO’s Global Airline Emission Agreement Will Have Little Near-Term Credit Impact But Could Potentially Lead To Long-Term Costs, Oct. 11, 2016
- The Heat Is On: How Climate Change Can Impact Sovereign Ratings, Nov. 25, 2015
- How Environmental And Climate Risks Factor Into Global Corporate Ratings, Oct. 21, 2015
- Countries And Companies Are Taking Steps To Counter Climate Change And Natural Catastrophes, Apr. 21, 2015
- Climate Change Will Likely Test The Resilience Of Corporates' Creditworthiness To Natural Catastrophes, April 20, 2015
- Airline Carbon Costs To Take Off As EU Emissions Regulations Reach For The Skies, Feb. 18, 2011
- Understanding Climate Risks At The Asset Level: The Interplay Of Transition And Physical Risks, Trucost, Nov. 25, 2019
This report does not constitute a rating action.
|Primary Credit Analyst:||Paul Munday, London + 44 (20) 71760511;|
|Secondary Contacts:||Beata Sperling-Tyler, London (44) 20-7176-3687;|
|Karl Nietvelt, Paris (33) 1-4420-6751;|
|Kurt E Forsgren, Boston (1) 617-530-8308;|
|Peter Kernan, London (44) 20-7176-3618;|
|Michael Wilkins, London (44) 20-7176-3528;|
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