S&P downgrades Aeroméxico to B-
May 26, 2020
Airline faces a 53.8% drop in revenues this year as travel restrictions keep flights grounded, rating agency says
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S&P Global said it downgraded Aeroméxico by two notches to B- with a negative outlook, saying the airline industry faces a longer-than-expected recovery after the coronavirus pandemic subsides.
Aeroméxico is expected to suffer a sharp drop in passenger traffic in 2020 and 2021, owing to the economic impact of the pandemic, and it will likely have to get financing to cover liquidity gaps, S&P said in a report on Friday. The airline will offset the losses by reducing fixed costs, S&P added.
If global travel restrictions go on for an extended period of time, Aeroméxico may have to spend more cash to stay afloat, which could make it more difficult for the airline to service its debt and remain up to date on its lease payments, according to S&P.
Aeroméxico had at least a 23% market share in domestic flights and 40% in international flights at the end of March this year, according to information from the transport and communications ministry SCT. But S&P estimated that the airline was running at 10% capacity.
Aeroméxico's revenues are expected to drop 53.8% in 2020, while EBITDA remains flat at MXN900 million ($39.6 million), the rating agency said.
"In addition, Aeroméxico's funding needs have increased, which prevents lowering leverage in the next two years, leading to a debt-to-EBITDA ratio well above five times," S&P said.
The airline added $400 million in debt in February this year, when it issued five-year bonds ti yield 7% in the cross-border market.