Singapore (Mar 23): Large airlines have adequate liquidity to manage through a fairly significant short-term disruption through June, and a continuing but more moderate disruption through the third quarter, according to a preliminary assessment by credit ratings firm Moody’s Investors Service.
Moody’s signalled that it has initiated reviews for downgrades of its ratings for most of the airline companies that it rates.
This comes after it revised its outlook for the global airline industry to negative in early March.
The ratings agency expects more modest-sized airlines, or those that are less liquid, to be more exposed.
It notes the potential for some airlines to collapse within a short period without additional support from shareholders or central governments.
While lower oil prices will mitigate some of the downside and benefit unhedged airlines, fuel hedging will be a burden for others, Moody’s adds.
The way Moody’s sees it, the extent of government intervention is critical.
The rating agency believes that many airlines will require financial support from federal and state governments, particularly if more aggressive measures to contain the spread of the virus are implemented.
“The breadth and severity of the initial shock, the expected ensuing deterioration in credit quality and the significance of lingering uncertainties has intensified the risk that the passenger airline sector faces due to the coronavirus pandemic,” said Russell Solomon, Moody’s associate managing director.
As the coronavirus pandemic widens and deepens, Moody’s sees the passenger airline sector as one of the most adversely affected industries given its exposure to travel restrictions and sensitivity of consumer demand and sentiment.
On a full-year basis, Moody’s expects global industry capacity to fall 25% to 35%, assuming the spread of the virus slows by the end of June.
“The key drivers of how significantly credit quality will ultimately be affected are the duration of the demand trough and whether airlines have sufficient liquidity to cope until schedules start to return to normal,” says Martin Hallmark, Moody’s senior vice president.
“While weaker airlines may be pushed to default, we do not expect even the strongest companies to emerge unscathed,” he adds. “This is notwithstanding the fact that many of our rated airline companies entered the crisis with reasonably strong liquidity buffers.”
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