Moody’s and S&P credit rating agencies become more negative about the airline industry as a whole. IAG aviation group and subsidiary British Airways received a lower rating from Moody’s, as did price-fighter easyJet. Standard & Poor’s (S&P) downgraded aircraft manufacturer Airbus and engine builder Rolls-Royce was also considered less creditworthy. The latter company rating was lowered beyond the acceptable grades.
The rating of IAG and British Airways went from Baa3 to Ba1. EasyJet is one step above that and went from Baa2 to Baa3. In all cases, the outlook is still negative, which means there is a good chance that further downward revisions will follow. Moody’s gives the increasingly longer duration and severity of the coronavirus outbreak as the reason for the write-down. The credit rating agency expects aviation to suffer severely this year and next year from declining demand and imposed restrictions. It is not until 2023 that the credit rating agency expects to restore passenger levels from the year 2019.
S&P lowered Airbus’s rating from A + / A-1 + to A / A-1, and the forecast remains negative. The rating agency expects Airbus’ sales to drop by about a third compared to last year and the company to make much less profit as a result. According to S&P, Airbus is also in debt at the end of the year. The credit assessor also expects loss to the aircraft manufacturer next year.
Rolls-Royce was lowered to BB / B, where it was previously BBB- / A-3. Not only can Rolls-Royce supply fewer engines due to fewer aircraft being built, the company also needs to provide fewer maintenance services, parts and replacement engines because aircraft are much less frequently airborne this year. S&P thinks that Rolls-Royce may have to make significant write-offs in the next twelve months.