New York, March 17, 2020 -- Moody's Investors Service ("Moody's") placed its
debt ratings of Hawaiian Holdings, Inc. and its subsidiary
Hawaiian Airlines, Inc. (together, "Hawaiian"),
including the Ba3 corporate family rating and the only instrument Moody's
rates, Hawaiian's Series 2013-1 Enhanced Equipment
Trust Certificates, on review for downgrade. The speculative
grade liquidity rating was downgraded to SGL-3 from SGL-1.
The rapid and widening spread of the coronavirus outbreak, the 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.
More specifically, Hawaiian is left vulnerable to shifts in market
sentiment in these unprecedented operating conditions, and the company
remains vulnerable to the outbreak continuing to spread. Moody's
regards the coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
Today's actions reflect the impact on Hawaiian of the breadth and
severity of the shock, and the broad deterioration in credit quality
it has triggered.
In its review for downgrade, Moody's considers that the coronavirus
will significantly curtail US domestic and global demand for air travel
through at least June. For now, Moody's assumes a measured
pace of recovery in demand commencing in the third quarter. Moody's
anticipates that the accelerating incidence of the coronavirus across
the US will lead to further capacity reductions across the industry and,
potentially, a temporary restriction on passenger air services,
both domestically and to and from additional foreign countries.
Moody's current assumption is that domestic industry capacity in
the US is cut by 50% in the second quarter and by 25% in
the third quarter versus the respective quarters in 2019. For the
three US global carriers and Hawaiian, Moody's assumes capacity
on international routes will shrink by 90% or more in the second
quarter and a slower recovery than for domestic traffic following the
virus' decline. Moody's assumes Hawaiian's full
year capacity would reduce by at least 20%. However,
there are high risks of more challenging downside scenarios and the severity
and duration of the pandemic and travel restrictions are uncertain.
In its review, Moody's will consider (i) the sufficiency of
the Hawaiian's liquidity profile and actions the company will take
to bolster its liquidity; (ii) its ability to timely and, in
what magnitude, aggressively reduce expenses and capital investments
to reduce cash outflows as new booking levels recede; (iii) evolving
market conditions, including demand patterns and responsive additional
capacity cuts; (iv) the potential for and types of support the US
government might provide to the US airlines; and (v) the potential
to timely restore its credit metrics and sustain a strong cash buffer
following the coronavirus, both of which will require prioritization
of debt reduction over share repurchases.
LIQUIDITY
Moody's considers Hawaiian's liquidity to be adequate,
resulting in the downgrade of the speculative grade liquidity rating to
SGL-3. The company ended 2019 with $619 million of
cash and an undrawn $235 million revolving credit facility that
requires 1x collateral coverage and minimum liquidity (cash + revolver
availability) of $300 million to borrow. Annual debt maturities
(debt and finance lease obligations) including interest range between
$70 million and $100 million in each of 2020 and 2021.
Moody's estimates the company could raise upwards of $1 billion
in cash if it pledged all of its unencumbered aircraft, including
some A321s, A330s and 717s, and its entire ATR turbo prop
fleet.
RATINGS RATIONALE
The Ba3 corporate family rating balances Hawaiian's 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 market.
The competitive intensity will continue when the restoration of normal
flight schedules occurs.
The ratings could be downgraded if Moody's believes the impact of
the coronavirus will lead to a steeper and longer decline in passenger
demand and weaker credit metrics. A shutdown of US domestic airspace
could lead to a downgrade, as would aggregate liquidity approaching
$450 million. Additional downward ratings pressure would
result from (i) a longer-running decline in passenger bookings
beyond the second quarter of 2020, or a slower pace of recovery
as a result of the coronavirus outbreak, particularly if not matched
by further additional sources of liquidity; (ii) greater liquidity
pressure from an inability to remove costs and cut capital spending;
and/or (iii) 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 4.5x,
FFO plus interest-to-interest falls below 4.5x or
retained cash flow-to-debt drops below 20%).
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 25%, debt-to-EBITDA
is sustained below 2.5x and retained cash flow-to-debt
exceeds 25% while the company takes delivery of the 787s on order
in upcoming years.
The methodologies used in these ratings were Passenger Airline Industry
published in April 2018 and Enhanced Equipment Trust and Equipment Trust
Certificates published in July 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Headquartered in Honolulu, Hawaii, Hawaiian Holdings,
Inc. is 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. Hawaiian also provides approximately
170 jet flights daily between the Hawaiian Islands, with a total
of almost 260 daily flights systemwide. The company reported revenue
of $2.8 billion for the year ended December 31, 2019.
Downgrades:
..Issuer: Hawaiian Holdings, Inc.
....Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-1
On Review for Downgrade:
..Issuer: Hawaiian Airlines, Inc.
....Senior Secured Enhanced Equipment Trust,
Series 2013-1 Class B, Placed on Review for Downgrade,
currently Ba2
....Senior Secured Enhanced Equipment Trust,
Series 2013-1 Class A, Placed on Review for Downgrade,
currently Baa1
..Issuer: Hawaiian Holdings, Inc.
....Corporate Family Rating, Placed
on Review for Downgrade, currently Ba3
....Probability of Default Rating, Placed
on Review for Downgrade, currently Ba3-PD
Outlook Actions:
..Issuer: Hawaiian Airlines, Inc.
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Hawaiian Holdings, Inc.
....Outlook, Changed To Rating Under
Review From Stable
REGULATORY DISCLOSURES
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
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
Client Service: 1 212 553 1653
