Fitch revises Air Canada rating outlook

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By admin April 26, 2016 20:17

Fitch revises Air Canada rating outlook

Fitch Ratings has revised its Rating Outlook on Air Canada to Positive from Stable. The long-term Issuer Default Rating (IDR) has been affirmed at ‘B+’. In addition, Fitch has upgraded Air Canada’s senior unsecured debt to ‘B+/RR4’ from ‘B/RR5’.

The rating action is supported by Air Canada’s improving financial results, reduced pension obligations, and longer-term commitment to de-leveraging. The Positive Outlook reflects financial results for 2015 that came in above Fitch’s prior expectations, driven in part by lower fuel prices, but also by the company’s ongoing efforts to reduce operating costs, increase ancillary revenues, and optimize its fleet through cabin upgrades and by growing its low-cost subsidiary, rouge. The Positive Outlook is also supported by an overall strengthened North American aviation market, which has led to improved credit profiles for most industry participants.

Fitch’s primary concerns remain the heavy capital spending required over the next couple of years as Air Canada works to renew its fleet. The large slate of 787-9s to be delivered over the next two years will push capital spending to above-average levels that are only heightened by the recent weakness of the Canadian dollar compared to the U.S. Dollar. Heavy capex requirements are expected to pressure free cash flow and limit AC’s opportunities to de-lever in the near term. These concerns are offset by the considerable savings the company stands to gain from lower fuel prices. Other concerns include the on-going unit revenue weakness across the industry as well as the risks that are typical for the airline industry including heavy cyclicality, high operating leverage, and exposure to exogenous shocks.

admin
By admin April 26, 2016 20:17