Australia Pacific Airports (Melbourne) Pty Ltd 's (APAM's) credit profile is underpinned by the demand for air travel in a geographically large yet highly urbanised island-country – in which there is an absence of alternative means of rapid transport between Australia's major cities.

A recovery in air passenger traffic, having been disrupted by COVD-19 and resulting government-imposed travel restrictions, is now underway being led by domestic travel. International traffic, which generates the majority of the airport's aeronautical revenues, is recovering at a slower pace than domestic, albeit recent Chinese government actions on removing Covid restrictions and the slow resumption of international travel auger well for travel from Asia and the rest of the globe. Traffic from China and Hong Kong amounted to around 16% of international traffic in 2019 prior to the pandemic.

The passenger recovery, since COVID, has driven an improvement in the airport's credit profile. In particular, we expect APAM's financial leverage, as measured by funds from operations (FFO) to gross debt, to strengthen towards the rating tolerance level of 9.5% over the next 18 24 months. Whilst Melbourne Airport's financial policy commits only to a minimum FFO/debt of 8%, such does not preclude the maintenance of a Baa1 rating. As such we expect the airport to continue maintaining a stable capital structure

Melbourne Airport has a substantial capital investment pipeline over the next number of years, reflecting the company's strategic focus of upgrading its passenger service offering and developing its property precinct (landbank). In particular, the airport's masterplan includes the development of a third runway, that will involve material capital expenditure and execution risk. Given the absence of approvals and uncertainties over the timing of the development of the new runway, the rating does not currently factor in its development. That said, Moody's expects the airport to maintain a capital structure that results in credit metrics consistent with the Baa1 rating parameters over time, and prudently manage development risk via appropriate contractual arrangements with solid contractors.

The airport has adequate liquidity to meet its obligations for at least the next 12 months, and is well supported by its shareholders and has demonstrated its access to capital markets.