Airlines with Investment Rating (Part 1 of 3)

Airline Ratings

An investment grade signals that a corporate bond has a relatively low risk of default. Companies assigned ratings within the investment grades are perceived to have a higher capacity to pay back their loans. However, these grades vary from AAA being the highest credit quality to BBB (good credit quality) being the least on the investment grade curve.

In this edition, we will focus on the peculiarities of airlines that have been assigned investment grade ratings in recent times.

British Airways Plc, the flag carrier of the United Kingdom headquartered in London, England, received an upgrade on its Long-Term Issuer Default Rating (IDR) to ‘BBB-‘from BB+ by an international rating agency.

According to the Credit Rating Agency, “the upgrade reflects BA’s stronger than expected performance, which has led to the revision of its Standalone Credit Profile (SCP) to ‘bb+’ from ‘bb’. BA’s performance has mainly been supported by stronger than expected passenger yields and gradual capacity recovery, resulting in improved profitability, cash flow generation, and lower leverage metrics. Furthermore, gross debt reduction by the early repayment of the GBP2.0 billion UK Export Finance (UKEF)-backed loan reduces interest paid and supports coverage metrics.”

As stated by the rater, “The Stable Outlook reflects improved travel demand in BA’s key markets, its capacity to pass on high fuel prices, but also downside risk from continued cost of living issues, persistent cost inflation, and geopolitical uncertainty. It also takes into account BA’s conservative financial policy with an EBITDA net leverage target of 1.8x (on a reported basis).”

Additionally, British Airways Plc benefits from its strategic importance, given its stronger business profile and largest contribution to the group.

Compared with other European peers the CRA has rated, such as Turkish Airlines, with a similar business profile, British Airways benefits from a more profitable route structure and substantially more stable home market conditions.

Please note that the view expressed is not that of DataPro but was only adapted.


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