Fitch Ratings said on 4 November that it has downgraded Airbus’s Long-Term Issuer Default Rating (IDR) to BBB+ from A- with a negative outlook. Fitch has also downgraded Airbus’s and Airbus Group Finance BV’s senior unsecured debt to BBB+ from A-. Fitch said the downgrade reflects its view that the recovery from the COVID-19 pandemic will be more prolonged “relative to our previous expectations, with a slower rebound in the large commercial aircraft (LCA) market leading to weaker cash flows through the medium term. Fitch believes that Airbus will be challenged to return its financial metrics to levels consistent with an A- rating by the end of 2022”.
The negative outlook reflects Fitch’s view that key financial ratios may come under further pressure in the short to medium term as a result of the uncertain nature, length and impact of the pandemic on the sector and the global economy, which has traditionally been an important driver of airline traffic, Fitch said in its announcement.
Fitch said it expects Airbus’s 2020 deliveries to be between 500-550 units, the lowest level since 2011. In subsequent years, Fitch expects annual deliveries to increase at a low double-digits percentage rate, driven primarily by the A320 family, although this base case assumes no repeat of the widespread restrictions on flights experienced in 2Q20 as well as the containment of COVID-19 via a widely available vaccine in 2021. Fitch notes the Airbus backlog remains very strong at over 7,400 units, although Fitch does not expect 2019 aircraft delivery rates to be reached until at least 2025.
As a consequence of the sudden decline in deliveries, Airbus’s funds from operations (FFO) margin is likely to be in the low single digits in 2020, and is expected to rise from 2021 to around 7-9 percent, a level considered moderate for a BBB+ rating. Some margin upside is likely to be derived from the company’s restructuring plan to reduce the current headcount, although the benefits of these measures may not be fully achieved until the latter part of 2021.
Fitch said it expects global airline traffic will not return to 2019 baseline levels until 2024, with the pace of recovery diverging across regions. “We assume 2021 traffic will be down more than 30 percent from the 2019 baseline in our base case, but this assumes progress is made in controlling the pandemic. Consequently, airline profitability and fleet expansion capabilities will be materially lower than pre-pandemic. We assume that domestic/regional traffic recovers more quickly, reaching 2019 levels by mid-2023, while international/long-haul traffic will not return to 2019 levels until 2024 at the earliest”.