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Rating Action:

Moody's downgrades easyJet to Baa3 from Baa2; outlook negative

28 May 2020

London, 28 May 2020 -- Moody's Investors Service, ("Moody's") has today downgraded easyJet Plc's (easyJet or the company) issuer rating to Baa3 from Baa2. Moody's has also downgraded the provisional senior unsecured rating of easyJet's GBP3.0 billion EMTN programme to (P)Baa3 from (P)Baa2 and the ratings of its €1.5 billion senior unsecured bonds due in 2023 and 2025 to Baa3 from Baa2. The outlook has been changed to negative from ratings under review. This concludes the review for downgrade initiated by Moody's on 17 March 2020.

A full list of affected ratings can be found at the end of this press release.

Today's rating actions reflect:

• The increasing duration and severity of the coronavirus outbreak

• Moody's expectation that the airline industry will remain deeply constrained in 2020 and 2021 and will not recover 2019 passenger volumes until 2023 at the earliest

• Despite current substantial liquidity, risks that financial resources could be under pressure from further coronavirus outbreaks and extended restrictions on air travel

• The likelihood that the company will incur substantially increased debt during the coronavirus pandemic, and is unlikely to fully repair its balance sheet in the next two to three years

• The company's position as one of the largest European point-to-point low-cost airlines with cost advantages over its direct competitors

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The passenger airline sector has been one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Today's action reflects the impact on easyJet of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

easyJet was initially affected by the coronavirus outbreak in Italy, which represented around 20% of 2019 passenger volumes. As the pandemic spread across Europe the company grounded its entire fleet from March, and currently plans to commence a small number of flights from mid-June with more to be introduced over time.

Moody's expects flight activity to resume over Q3 and Q4 of 2020, but remaining severely depressed, with domestic flights recovering earlier and a slower return for international and long haul flights. With its focus entirely on low cost European domestic and short haul travel easyJet is somewhat better placed than the legacy carriers in the timing of recovery and capturing business in a more constrained economic environment. The United Kingdom's current plans to quarantine international air passengers arriving from outside Ireland are also likely to affect easyJet, with around 35% of flights between the UK and European Union.

The International Air Transport Association (IATA) currently forecasts that 2020 global passenger numbers will be 48% down year-on-year, with 2021 volumes around 30% below 2019, and only recovering to 2019 levels by 2023[1]. Given high levels of uncertainty over the trajectory of the pandemic there are a wide range of possible outcomes and Moody's credit assessment considers deeper downside scenarios incorporating the risks of a slower recovery. In particular Moody's considers that 2021 is likely to remain a severely depressed year for the industry, with continued travel restrictions, health screening and social distancing, consumer concerns over travel, a weak economic environment and threats of further coronavirus outbreaks. This is likely to be partially mitigated by better preparedness by governments and healthcare systems, international coordination, pent-up consumer demand and the economic importance of resuming air travel. The timing and profile of a recovery beyond 2021 also remains highly uncertain.

In response to the crisis easyJet has secured substantial levels of liquidity and reduced costs and cash outflows, plus taken action to reduce its planned fleet size to compensate for likely reduced demand. The company also announced today an employee consultation process to reduce staff numbers by up to 30%. As at 31 March 2020 the company had total liquidity of around GBP1.8 billion, comprising cash of GBP1.4 billion and a committed and undrawn syndicated credit facility of $500 million. It has subsequently raised a further GBP600 million through the UK's Covid Commercial Financing Facility, GBP400 million of secured term loans due 2022, and is in the process of raising a further GBP400-550 million through aircraft sale and leasebacks. This would lead to a total notional liquidity at 31 March 2020 of around GBP3.3 billion, which the company reports as sufficient to support over nine months of groundings. The strength of liquidity remains subject to some uncertainty particularly in relation to the level of potential customer refunds for cancelled flights.

easyJet's liquidity is somewhat lower than similarly-rated airlines and any material deterioration in its position could put downward pressure on the rating. However, liquidity could be substantially boosted by raising further debt against aircraft, with around half of easyJet's fleet remaining unencumbered.

easyJet is in a significantly over-hedged position for fiscal year 2020, ending 30 September 2020, and has reported a mark-to-market loss of GBP175-185 million in relation to fuel and currency hedges. This is expected to be incurred in cash in fiscal 2020 and included within the company's cash burn analysis. Moody's expects that easyJet will incur substantial additional debt to support its liquidity and cash consumption during the coronavirus outbreak, and that operational cash generation is unlikely to be sufficient thereafter to fully restore balance sheet metrics by 2023.

At the same time the rating reflects Moody's expectation that easyJet will remain a leading operator in the industry and that it is likely to gain market share and improve operational efficiencies after the crisis. This is supported by its position as one of the largest European point-to-point low-cost airlines with a large route network and number one or number two market positions at many primary airports; its competitive advantage over its direct competitors in terms of its cost structure; and its domestic and short haul network which is likely to recover more quickly than long haul routes. easyJet currently competes mainly with higher cost legacy airlines, although market dynamics are likely to change post crisis with free capacity available at many of easyJet's airports which could lead to increased competition from other low-cost airlines including Ryanair and Wizz Air Holdings plc.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

easyJet complied with the applicable 2016 UK Corporate Governance Code throughout fiscal 2019. On 22 May 2020 easyJet's shareholders voted against resolutions brought by the company's founder and largest shareholder, Sir Stelios Haji-Ioannou, to remove four board members. Whilst the vote removes uncertainty over board composition and management strategy, such tensions are an unwelcome distraction and may impact on the company's future ability to raise equity finance. On 26 May 2020 the company's Chief Finance Officer Andrew Findlay announced his intention to leave easyJet, with his departure expected in May 2021.

On 19 May 2020 easyJet reported that it had been subject to a cyber attack in which email addresses and travel details of around nine million customers were accessed. Moody's does not expect the incident to result in either a substantial fine or material loss of bookings. This is because of the sophisticated nature of the attack, close liaison with regulatory bodies, the limited access to customers' credit card details, and the current low booking environment.

easyJet has committed to net-zero carbon dioxide emissions on all flights across its network through the purchase of carbon offsets since November 2019.

OUTLOOK

The negative outlook reflects the continued uncertain prospects for the airline industry, with risks of extended disruption to travel causing further strain on the company's balance sheet and liquidity.

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

The ratings are unlikely to be upgraded in the short term. Positive rating pressure would not arise until the coronavirus outbreak is brought under control, travel restrictions are lifted, and passenger volumes return to more normal levels. At this point Moody's would evaluate the balance sheet and liquidity strength of the company and positive rating pressure would require evidence that the company is capable of substantially recovering its financial metrics and restoring liquidity headroom within a 1-2 year time horizon.

Moody's could downgrade easyJet if:

• There are expectations of deeper and longer declines in passenger volumes extending materially into 2021

• There is a material weakening in the company's liquidity position or there are concerns over the adequacy of liquidity driven by extended groundings in 2021

• There are clear expectations that the company will not be able to maintain financial metrics compatible with a Baa3 rating following the coronavirus outbreak, in particular if:

- Gross adjusted leverage is expected to be sustainably above 3.5x

- Retained cash flow to debt reduces consistently below 20%

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Passenger Airline Industry published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091811. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: easyJet Plc

....LT Issuer Rating, Downgraded to Baa3 from Baa2 on review for downgrade

....Backed Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa3 from (P)Baa2 on review for downgrade

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2 on review for downgrade

Outlook Actions:

..Issuer: easyJet Plc

....Outlook, Changed To Negative From Ratings Under Review

COMPANY PROFILE

Established in 1995, easyJet Plc is one of the largest low-cost airlines in Europe, with around 96 million passengers, sales of GBP6.4 billion and Moody's-adjusted EBIT of GBP490 million in fiscal 2019. easyJet is listed on the London Stock Exchange, and the family of the founder, Sir Stelios Haji-Ioannou, remains the largest shareholder of the group, with a stake of 33.7%.

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.

REFERENCES/CITATIONS

[1] IATA publication, "Covid-19: outlook for air travel in the next 5 years", dated 13 May 2020: https://www.iata.org/en/iata-repository/publications/economic-reports/covid-19-outlook-for-air-travel-in-the-next-5-years/

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.

Martin Robert Hallmark
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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