New York, May 28, 2020 -- Moody's Investors Service ("Moody's") downgraded its ratings for Hawaiian
Holdings, Inc. ("Hawaiian"); corporate family rating
to B1 from Ba3 and probability of default rating to B1-PD from
Ba3-PD. Moody's also downgraded subsidiary Hawaiian
Airlines, Inc.'s Series 2013-1 Enhanced Equipment
Trust Certificate ratings to Ba2 from Ba1 for the Class A and to B1 from
Ba3 for the Class B. The speculative grade liquidity rating was
upgraded to SGL-2 from SGL-3. The ratings outlook
is negative. Today's rating actions conclude the review for
downgrade of Hawaiian's ratings that was initiated on March 17,
2020.
The spread of the coronavirus pandemic, the weakened global economic
outlook, low and volatile oil prices, and asset price declines
are sustaining a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these developments
are unprecedented. The passenger airline industry is one of the
sectors most significantly affected by the shock given its exposure to
travel restrictions and sensitivity to consumer demand and sentiment.
Moody's regards the coronavirus pandemic as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's downgrade of Hawaiian's ratings
balances the company's good liquidity against the breadth and severity
of the coronavirus shock and the uncertain trends in passenger demand
to, from and within Hawaii for an unknown period. Hawaiian
derives its revenue about one-third each from its US mainland,
inter-island and trans-Pacific -- mainly Japan,
Korea, Australia and New Zealand -- networks. Travel
restrictions, including for inter-island service and required
quarantines for arrivals to Hawaii could linger, slowing the recovery
of demand for the airline.
Moody's expects the coronavirus pandemic will significantly curtail US
domestic and global demand for air travel for an extended period.
Moody's assumed that Hawaiian's Q4 2020 capacity would be down about
40% from Q4 2019 in its faster recovery model and about 70%
in its slower recovery model. In all scenarios, the reduction
in passenger demand is greater than the reduction in capacity, leading
to meaningfully lower load factors. These scenarios also assume
that passenger demand and operating margins substantially increase towards
2019 levels in 2023. Hawaiian has been the second most profitable
US airline between 2013 and 2019, with an average operating margin
of about 16.4%. Allegiant is the leader at about
20%. The risk of more challenging downside scenarios remains
high, and the severity and duration of the pandemic and travel restrictions
remain highly uncertain, particularly given the threat of an increase
in the number of infections as social distancing practices in the continental
US ease in upcoming weeks and beyond. The future trend of infections
in the continental US could lead to Hawaii extending the required 14-day
quarantines and travel restrictions that are currently in place.
The negative outlook reflects the potential for greater than already anticipated
impacts of the coronavirus, which would consume more of the company's
liquidity and delay the pace and scope of the recovery in demand,
the retirement of debt and the strengthening of credit metrics relative
to Moody's current expectations.
LIQUIDITY
Moody's estimate of cash and short-term investments of about $750
million on April 30 supports the company's good liquidity profile.
The company drew its $235 million revolver due in December 2022
on March 16th. Hawaiian will receive $146 million under
the Payroll Support Program of the US Coronavirus Aid, Relief,
and Economic Security (CARES) Act. Of this amount, $58
million will be a 10-year, unsecured loan. A CARES
Act secured loan of $364 million will also be available to Hawaiian
through September 30, 2020, should it decide to utilize this
part of the program. Income tax refunds under certain provisions
in the CARES Act will be an additional source of liquidity. Unsecured
assets with value of about $800 million remain available for additional
financing, if needed.
RATINGS RATIONALE
The B1 corporate family rating balances Hawaiian's recent modest financial
leverage against its niche model providing passenger air service anchored
in the State of Hawaii. The company has a record of solid operating
performance and focused debt reduction in recent years, sustaining
debt-to-EBITDA below 2.4x between 2016 and 2019.
Recent financial performance has been pressured by Southwest Airlines'
entry into the US West Coast to Hawaii and inter-island markets.
The competitive intensity will continue when restoration of normal flight
schedules occurs, which will likely pressure margins and operating
cash flows. The order for ten 787-9 wide-bodies,
if maintained, will also lead to higher adjusted debt balances,
leading to some re-levering of the capital structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The corporate family rating could be downgraded if Moody's believes the
coronavirus will constrain passenger demand for an extended period and/or
credit metrics deteriorate more than expected. Downward ratings
pressure would result if the aggregate of cash and revolver availability
approach $450 million; a longer-running decline in
passenger bookings continues into 2021, or a slower pace of recovery
as a result of the coronavirus pandemic occurs, particularly if
not matched by further additional sources of liquidity; greater liquidity
pressure from an inability to remove costs and cut capital spending;
and/or if there are clear expectations that Hawaiian will not be able
to timely restore its financial profile once the virus recedes (for example,
if debt-to-EBITDA approaches 5.5x, funds from
operations plus interest-to-interest approaches 2.5x
or retained cash flow-to-debt drops below 12%).
There will be no upwards pressure on the ratings until after passenger
demand returns to pre-coronavirus levels, Hawaiian maintains
liquidity above $800 million, and key credit metrics improve
such as EBITDA margins above 20%, debt-to-EBITDA
is sustained below 4.5x and retained cash flow-to-debt
approaches 15% while the company takes delivery of the 787s on
order in upcoming years and while competing with expanding service from
Southwest Airlines.
Changes in the EETC ratings can result from any combination of changes
in the underlying credit quality or ratings of the company, Moody's
opinion of the importance of the aircraft collateral to the company's
operations, and/or its estimates of current and projected aircraft
market values, which will affect estimates of loan-to-value.
The methodologies used in these ratings were Passenger Airline Industry
published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811,
and Enhanced Equipment Trust and Equipment Trust Certificates published
in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852
. Alternatively, please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
The following rating actions were taken:
Downgrades:
..Issuer: Hawaiian Holdings, Inc.
.... Corporate Family Rating, Downgraded
to B1 from Ba3
.... Probability of Default Rating,
Downgraded to B1-PD from Ba3-PD
..Issuer: Hawaiian Airlines, Inc.
....Senior Secured Enhanced Equipment Trust
Class A, Downgraded to Ba2 from Ba1
....Senior Secured Enhanced Equipment Trust
Class B, Downgraded to B1 from Ba3
Upgrades:
..Issuer: Hawaiian Holdings, Inc.
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-2 from SGL-3
Outlook Actions:
..Issuer: Hawaiian Airlines, Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Hawaiian Holdings, Inc.
....Outlook, Changed To Negative From
Rating Under Review
Headquartered in Honolulu, Hawaii, Hawaiian Holdings,
Inc. is publicly traded company (NASDAQ: HA) and the holding
company parent of Hawaiian Airlines, Inc. ("Hawaiian"),
Hawaii's biggest and longest-serving airline. Hawaiian offers
non-stop service to Hawaii from 13 US gateway cities, along
with service from Japan, South Korea, Australia, New
Zealand, American Samoa and Tahiti during normal times. In
2019, Hawaiian also provided approximately 170 jet flights daily
between the Hawaiian Islands, with a total of almost 260 daily flights
systemwide. Revenue was $2.7 billion for the last
twelve months ended March 31, 2020.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Please see www.moodys.com for any updates on changes to
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the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jonathan Root, CFA
Senior Vice President
Corporate Finance 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
Russell Solomon
Associate Managing Director
Corporate Finance 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
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