Tuesday, Sept. 14, 2004 | 11:15 a.m.
The high-profile bankruptcy filing of the nation's seventh-largest airline could start a domino effect that could further damage the already embattled operator of the Las Vegas Monorail Co., a Wall Street credit rating agency said Monday.
Standard & Poor's, a New York credit rating agency, on Monday placed Bombardier Inc., the Canadian aerospace and railroad company that built and operates the monorail, on a credit watch after US Airways Inc. -- a key Bombardier client -- filed for bankruptcy protection last week.
The potential downgrade could push Bombardier's bonds into junk status, which would increase the company's cost to borrow and could hurt current investors as the value of the bonds would likely drop, according to Standard & Poor's.
The warning came after Fitch Inc., another credit rating agency, last week put the bonds that funded the Las Vegas Monorail on a credit watch.
The $650 million monorail remained closed this morning after a two-pound washer used to secure the train's drive shaft came loose and fell to the ground. The closure came barely a day after it reopened following a six-day closure prompted by a 60-pound wheel assembly falling off a moving train Sept. 1.
Monorail executives have publicly said Bombardier operators failed to act on 149 warnings that the wheel assembly was unstable.
Todd Walker, a spokesman for the monorail, said executives have not yet determined when the monorail will reopen this time. He downplayed any effect Bombardier's bond rating may have on the monorail.
"Our focus is on what needs to be changed or fixed here," Walker said. "Our focus should be here and not elsewhere. It should be on the system and what we have to do to ensure the safe operation of our system."
Jim Gibson, chairman of Transit System Management, which oversees the monorail, said last week the closure could last several weeks as engineers evaluate the train's design.
Bombardier is still under a $10 million annual contract to maintain the existing 4-mile route from the MGM Grand to the Sahara hotel. Plans for an extension to downtown Las Vegas were put on indefinite hold in light of the closure, as a $233 million contract awarded Bombardier in October 2003 expires at the end of this month, Gibson said Sunday.
Monorail officials have estimated the company loses between $85,000 and $100,000 each day the system is closed.
Unlike the current route, which was privately financed and backed by a private insurance company, the proposed expansion would include substantial government funding.
The US Airways filing came days after Fitch Inc. put the Las Vegas Monorail Co. on "Rating Watch Negative," meaning the bonds are in danger of being downgraded. A downgrade would place the bonds in a higher risk noninvestment or junk bond category.
Meanwhile Bombardier also faced fines stemming from the late delivery of cars for the 8-mile Hiawatha light rail line in Minneapolis-St. Paul, Minn. The publicly financed system opened in June after conflicts between the company and the Minnesota Department of Transportation over the late delivery of rail cars.
Scott Trommer, senior director of Fitch Ratings, said the change in Bombardier's bond rating was unlikely to affect the monorail's bond rating, as analysts do not think the shake-up at the Montreal-based company will trickle down to individual contracts.
"Even if the company enters into financial difficulty, it would be in the company's best interest to continue those projects," he said.
Trommer likened the monorail project to the publicly financed Northwest Parkway toll road project in Colorado, which in 2001 had a contracted construction firm, Washington Group International, fall into bankruptcy.
Like the monorail, the company had safeguards built into its contract that kept its financial woes from hurting the road project, Trommer said.
"The key with a project such as the Las Vegas Monorail is that their project and processes are separate and apart from the finances and processes of Bombardier," he said. "There is no direct tie to credit quality."
This week's potential downgrade is the latest in a series of financial problems for Bombardier, which in March said it would close seven of its European railroad factories and lay off 6,600 employees, all but 680 of whom work in the company's European plants. No layoffs are planned at the Las Vegas monorail site, where 40 Bombardier technicians run the trains, Kathryn Nickerson, a spokeswoman for Bombardier, said.
Another 30 Bombardier employees work in the monorail's control center behind the Sahara hotel as safety officers and supervisors, she said.
"It's not affecting our individual sites," Nickerson said. "It's an absolute non-issue."
Walker said monorail officials are confident Bombardier will be able to fulfill its responsibilities in Las Vegas and that the shake-ups will have little impact on the monorail's day-to-day operations.
"They're a world-class company that's been here for a long time," Walker said. "They have staying power. They'll be here for the long term."
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