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Rating Action:

Moody's affirms the Baa3 issuer rating of Dubai Aerospace Enterprise, revises outlook to stable from negative

02 Jun 2021

New York, June 02, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the Baa3 issuer rating of Dubai Aerospace Enterprise (DAE) Limited (DAE) and the Baa3 long-term senior unsecured rating of its subsidiary DAE Funding LLC. Moody's has also revised the outlooks for the issuers to stable from negative.

Affirmations:

..Issuer: AWAS Aviation Capital D.A.C.

.... Issuer Rating, Affirmed Baa3

..Issuer: DAE Funding LLC

.... Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

.... Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: DAE Sukuk (DIFC) Ltd

.... Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

.... Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Dubai Aerospace Enterprise (DAE) Ltd

.... Issuer Rating, Affirmed Baa3

Outlook Actions:

..Issuer: AWAS Aviation Capital D.A.C.

....Outlook, Changed To Stable From Negative

..Issuer: DAE Funding LLC

....Outlook, Changed To Stable From Negative

..Issuer: DAE Sukuk (DIFC) Ltd

....Outlook, Changed To Stable From Negative

..Issuer: Dubai Aerospace Enterprise (DAE) Ltd

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Moody's affirmation of DAE's ratings reflects its consistently strong liquidity position, strong capital management, and disciplined transaction underwriting that position the company well to manage aviation sector challenges to earnings and cash flow. The affirmation is also based on Moody's expectation that challenges to profitability and earnings will be gradually alleviated by growing air travel volumes through 2023. DAE's diverse funding sources and strong liquidity coverage are underscored by its unique access to capital in the United Arab Emirates (Government of United Arab Emirates, Aa2 stable), as well as by its long-term, stable ownership by the Investment Corporation of Dubai.

Moody's has revised DAE's outlook to stable from negative based on Moody's expectation that demand for leased aircraft will rise as air carriers rebuild capacity to serve strengthening air travel demand, helping to improve DAE's profitability and cash flow metrics over the next 12-18 months. The stable outlook also reflects Moody's expectation that DAE will maintain strong access to alternate liquidity and low leverage.

Moody's revised its outlook for the aircraft leasing sector to stable from negative on 20 May 2021, reflecting its expectations that rising air travel volumes will strengthen airline credit quality and improve demand for leased aircraft, strengthening lessors' prospects for achieving stronger profitability by 2023. The stable outlook also reflects strong liquidity positioning as well as stable financial leverage in the sector, as the risk of large impairment charges recedes.

Moody's estimates that DAE's multiple sources of liquidity provide over 200% coverage of cash requirements for operating expenses, debt maturities and aircraft purchase commitments for the year commencing April 2021, which compares well with other Moody's-rated aircraft leasing companies. DAE's liquidity is aided by ample borrowing availability under its $3 billion revolving credit facilities, as well as well-distributed debt maturities and moderate aircraft purchase commitments.

DAE's fleet of leased aircraft is more diverse by type, model and age than other rated aircraft leasing companies, though this is due partly to its investment in freighter and turboprop models that have more specialized uses than narrow-body models manufactured by Boeing and Airbus. The strong performance of the cargo market during the downturn offsets the company's 14% concentration exposure to Boeing 777F freighter aircraft. DAE's $11.7 billion fleet of 303 owned aircraft at 31 March 2021 had an average age of 6.0 years and average remaining lease term 6.8 years; both of these measures are comparable to investment grade rated peer medians.

DAE, like peers, has had to contend with weakened airline credit performance that has led the company to provide rent deferrals and take other measures to keep its aircraft deployed, the net result of which has been lower profitability and cash flow. However, Moody's expects that air passenger demand will recover strongly toward 2019 levels by 2023. Moody's also expects that leasing will remain an important source of aircraft acquisition capital for the airline industry and that recovery will provide new leasing opportunities that will help to revive DAE's cash flows and earnings. DAE's liquidity and access to capital should position it well to pursue opportunities to acquire leased aircraft as demand conditions improve, strengthening revenues and cash flow to levels that align with expectations for the company's existing ratings.

DAE has an adequate capital cushion in relation to its fleet risks. The company's leverage, measured as the ratio of debt to tangible net worth was 3.0x (2.7x net debt) at 31 March 2021, moderately higher than the average of investment-grade rated peers. Moody's believes that risks to capital strength from weak performance and impairment charges is receding as leased aircraft demand rises in connection with a recovery in air travel. Moody's expects that DAE will maintain strong capital discipline during the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade DAE's ratings if: 1) the company maintains stronger than peer average liquidity; 2) the strength of recovery in air travel volumes exceeds Moody's base case; 3) the company generates stronger profitability and cash flow ratios than peers while strengthening fleet composition through additional investment; 4) fleet residual value risks and composition are well managed;, and 5) the company's management of capital remains strong, resulting in a debt-to-equity leverage ratio materially lower than peer average.

DAE's ratings could be downgraded if: 1) liquidity in relation to projected expenditures and debt maturities (one-year horizon) declines to less than 150% 2) recovery in air travel volumes declines materially below Moody's base case; 3) revenues weaken and costs increase to the extent that the company is unable to generate materially positive profits and operating cash flow in 2023; 3) debt-to-equity leverage increases more than Moody's expects due to high impairment charges; 4) the company's competitive positioning otherwise weakens.

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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