While a number of carriers including British Airways, Delta and Virgin Atlantic had previously announced suspension of flights to China, rating agency Fitch said that the Wuhan coronavirus is not expected to have a major impact on the aircraft lessor sector and ABS ratings in the near term.
Fitch cited the relative diversity of customer bases, solid cash flow generation derived from long-term leases and the fact that current ratings already reflect sensitivity to periodic exogenous shocks, meant the impact on airlines earnings should be limited.
However, the Fitch report did say that should a pandemic develop further and materially disrupt the airline industry or slow down passenger growth in China and elsewhere, aircraft lessor and ABS ratings could see increased downside pressure.
“A prolonged ban on traveling from and to China may have more negative implications for lessors and ABS transactions over the medium term, depending on the severity and duration of the interruption and individual lessors' exposure to airlines in the region,” Fitch said in a statement.
While pandemic diseases, such as severe acute respiratory syndrome (SARS), bird and swine flu have negatively affected passenger demand for air travel in the past, the Wuhan conivirus has not yet reached pandemic status yet, according to the World Health Organization.
“There should not be an immediate threat to lessor utilization rates and cash flows for aircraft lessors and ABS transactions, as airlines are locked into long-term leases, which require maintaining lease payments even with a reduction in revenue passenger miles. Lessors can also defer orderbook deliveries and reduce capital expenditures in the event of a temporary reduction in demand,” said the rating agency.
Fitch did warn, however, that a pandemic will start affecting lessors if there are elevated airline bankruptcies, if air travel is suspended for a prolonged period of time, or if a ban on air traffic to a specific country creates a problem for aircraft lessors to repossess and redeploy aircraft to other regions or if airlines start refusing new aircraft deliveries.
However, China data indicates continued spread of the disease, with new suspected cases up to 4148 (from 3248). Confirmed Mainland cases to date now stands at 7711; with 170 deaths. Elsewhere, there have only been 95 cases confirmed.