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24 Jan 2020
New York, January 24, 2020 -- Moody's Investors Service (Moody's) assigned a B1 Corporate Family Rating
(CFR) to Grupo Aeroméxico, S.A.B. de
C.V. (Aeroméxico.) and B2 to its proposed
USD400 million senior unsecured global notes to be issued by its fully
owned subsidiary Aerovías de México, S.A.
de C.V. and unconditionally guaranteed by Aeromexico.
The rating outlook is stable. This is the first time Moody's assigns
a rating to Aeromexico.
Aeroméxico will use the proceeds from the proposed notes issuance
to cover debt maturities under a local commercial paper program,
revamp its short distance fleet and reinforce its cash position.
The rating of the proposed notes assumes that the issuance will be successfully
completed and that the final transaction documents will not be materially
different from draft legal documentation reviewed by Moody's to date and
assume that these agreements are legally valid, binding and enforceable.
Issuer: Grupo Aeroméxico, S.A.B.
de C.V. (Aeroméxico)
Corporate Family Rating...............................B1
Issuer: Aerovías de México, S.A.
$400 million senior unsecured notes unconditionally guaranteed
by Grupo Aeromexico, S.A.B. de C.V...................B2
Issuer: Grupo Aeromexico, S.A.B. de C.V.
Outlook assigned: Stable
Issuer: Aerovías de México, S.A.
Outlook assigned: Stable
Aeroméxico's B1 corporate family rating reflects its leading
market position in Latin America supported by superior network connectivity
and strategic alliances. The rating also considers a stronger capital
structure pro-forma for the proposed issuance and other measures
currently in process aiming to enhance liquidity and profitability.
"The company is in the midst of a plan to improve its operating structure
and liquidity that will support its credit profile going forward."
said Sandra Beltrán, a VP-Senior analyst at Moody's.
Conversely, the B1 rating considers the company's still high gross
leverage and weak economic environment in Mexico. Aeromexico's
rating also incorporates its exposure to foreign currency, and other
risks inherent to the airline industry such as fuel price volatility and
tough competitive environment. Execution risk is also factored
in the B1 rating considering the extended grounding into 2020 of new MAX
aircrafts by The Boeing Company (A3, Ratings Under Review),
that will likely delay Aeromexico's recovery of financial profile,
In 2019, Aeromexico estimates its operating margin to be close to
2.5% and 3.8% in 2020 and then gradually improve
until stabilizing at close to 10% in 2023. The improvement
will be supported by a continuation of the company's segmentation
strategy of its customer base, further leverage of strategic alliances
that going forward will also benefit from the recently announced partnership
between Delta and LATAM Airlines Group S.A. (LATAM,
Ba3 stable), the largest airline group in South America.
Moreover, profitability will also improve as the MAXes, now
in Aeromexico's pipeline, are fully operational and replacing
less efficient aircrafts. Therefore, the continued delay
in the grounding of the MAXes poses a risk in the company's ability
to execute its strategy. Moreover, current margins are weak
when compared to rated peers such as American Airlines Group Inc.
(Ba3, stable), Azul S.A. (Ba3, stable),
LATAM and Gol Linhas Aereas Inteligentes S.A. (B1,
stable), which presented Moody's adjusted EBIT margin ranging
between 7.6% to 18.5%.
This relatively low profitability also results in weak cash generation.
We estimate that in the 2019 -- 2021 period cash flow from operations
will range from MXN11 billion to MXN 15 billion. However,
considering capex ranging from MXN3 billion to MXN 6 billion during the
same period and payments under fleet leasing contracts between MXN7.7
billion and MXN9.2 billion, cash generation will be flat
during this period. Therefore, liquidity is still weak but
will evolve through 2020. As of September 30, 2019,
the company reported MXN7.7 billion in cash ($390 million),
not enough to cover MXN15.4 billion in short term debt maturities.
The proposed issuance of $400 million global notes due in 2025
will reduce refinancing risk as some $130 million will be used
to cover debt maturities under a local commercial paper program.
Some other $130 million will be used to revamp its short distance
fleet and the balance will be kept in cash as a liquidity buffer.
Short-term debt include $74 million pre-delivery
payments (PDP), common debt instruments in the airline industry
that usually have staged partial payments of the aircraft price made by
the customer to the aircraft manufacturer pursuant to an aircraft purchase
agreement in advance of delivery of the aircraft.
The B2 rating assigned for the unsecured notes stands one notch lower
than Aeroméxico's B1 corporate family rating (CFR) in order
to reflect the effective subordination of those unsecured creditors to
the company's other existing secured debt. Aeroméxico's
consolidated debt is composed mainly of capitalized leases under IFRS
16 accounting and financing leases, representing about 85%
of its total debt. Therefore, the proposed unsecured notes
rank below all the company's existing and future secured claims.
The stable outlook reflects our belief that Aeroméxico will be
able to sustain the improvements in its operating margin, cash flow
generation, liquidity and leverage amid opportunities to continue
to capture synergies from the existing agreement with Delta, and
ongoing initiatives to increase operating efficiency.
A rating upgrade could be considered if Aeroméxico is able to successfully
execute its cost reduction and market strategies, strengthening
its financial profile, such that profitability improves with EBIT
margin closer to 10% (0.3% in LTM 3Q19) on a sustained
basis. An upgrade will also require a substantial improvement in
liquidity through stronger cash generation, measured as retained
cash flow/debt, improving towards 20% (12.8%
in LTM 3Q19). Likewise, leverage should decline with Debt-to-EBITDA
(after Moody's standard adjustments) being below 4.5 times on a
sustained basis (5.8 times in LTM 3Q19).
Conversely, negative rating pressure could develop if the company's
liquidity is strained due to a prolonged market downturn or significant
cost pressures, which combined with missteps in its aircraft acquisition
program lead to weaker credit profile. Quantitatively, downward
pressure on the rating could occur if adjusted EBIT margin remains below
5% and adjusted Debt-to-EBITDA remains above 6.0
times with no prospects to improve in the short term.
Based in Mexico City, Grupo Aeroméxico, S.A.B.
de C.V. (Aeroméxico) is Mexico's leading airline,
with more than 20 million passengers transported in 2018 and currently
serving 87 destinations (43 domestic and 44 international) in Mexico,
the United States, Europe, Central and South America,
Asia and Canada. The company currently has a fleet of 121 aircraft
with passengers accounting more than 90% of revenues and the balance
being related with cargo services. Aeroméxico has been a
public company since 2011. In 2017, Delta Air Lines,
Inc. (Delta, Baa3, positive) increased its equity stake
in Aeroméxico to 49%, enhancing the strategic alliance
between both companies. For the LTM period ended September 30,
2019, Aeroméxico generated revenues of $3.6
billion and EBITDAR of $652 million. Currently public float
of the company accounts for 20% of its equity stake.
The principal methodology used in these ratings was Passenger Airline
Industry published in April 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series, category/class of
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Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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