S&P Lufthansa summary, 5. May 2015
Transcription
S&P Lufthansa summary, 5. May 2015
Summary: Deutsche Lufthansa AG Primary Credit Analyst: Olli Rouhiainen, London (44) 20-7176-3769; [email protected] Secondary Contact: Izabela Listowska, Frankfurt (49) 69-33-999-127; [email protected] Table Of Contents Rationale Outlook Standard & Poor's Base-Case Scenario Business Risk Financial Risk Liquidity Other Credit Considerations Ratings Score Snapshot Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 1 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED. 1397213 | 301402931 Summary: Deutsche Lufthansa AG Business Risk: SATISFACTORY CORPORATE CREDIT RATING Vulnerable Excellent bbb- bbb- bbbBBB-/Stable/A-3 Financial Risk: SIGNIFICANT Highly leveraged Minimal Anchor Modifiers Group/Gov't Rationale Business Risk: Satisfactory Financial Risk: Significant • Strong market position in Frankfurt, Munich, Zurich, and Vienna. • Higher cost base than some peers. • Diversity of operations outside the passenger airline business offering more stability than if it were solely an airline. • Good exposure to long-haul and premium traffic. • Exposure to the volatile airline industry. • Significant financial risk profile with our view that the company will be able to improve and maintain adjusted funds from operations (FFO) to debt of about 23%. • Significant and volatile pension obligations that can lead to material differences in financial ratios if key assumptions around pensions change. • The pension volatility is offset by Lufthansa's credit-supportive actions, including stopping dividend payments for 2014, repaying debt, and the planned hybrid capital issuance. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 2 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED. 1397213 | 301402931 Summary: Deutsche Lufthansa AG Outlook: Stable The stable outlook reflects our view that Deutsche Lufthansa AG will be able to maintain its weighted-average Standard & Poor's-adjusted FFO to debt at about 23% in 2015-2016. However, in our view the company has limited headroom under the rating for further negative developments at this time. Downside scenario We could lower the ratings if weighted-average adjusted FFO to debt was to remain below 23% in 2016 or if we saw weakness in operating performance affecting our view of the company's competitive position. We could consider operating performance to be weak if revenues decline by more than 3% or if the company's EBITDA margin does not improve despite the lower oil prices in 2015. Upside scenario An upgrade is currently unlikely due to the pressure on Lufthansa's financial risk profile from its pension liabilities. We could take a positive rating action if these liabilities fell, and the weighted-average adjusted FFO-to-debt ratio increased to more than 30%. In our view, a higher rating as a result of operating performance alone is unlikely. Standard & Poor's Base-Case Scenario Our base-case scenario for Lufthansa reflects our economic forecast for GDP growth in the eurozone (European Economic and Monetary Union) of 1.5% in 2015 and 1.7% in 2016. For more information, see "Credit Conditions: The Eurozone Is Looking Up, For Now," published March 31, 2015, on RatingsDirect. Assumptions • We anticipate that Lufthansa's capacity as measured in available seat kilometers (ASK) will increase by 1%-2% in 2015 and 2%-3% in 2016. • Ticket sales as measured by revenue per passenger kilometers (RPK) will increase in the same range as capacity. • Average ticket prices will decrease by 2%-4% in 2015 and be flat to negative in 2016. • Oil prices will be about $55/barrel in 2015 and $65/barrel in 2016 (see "Standard & Poor's Revises Its Crude Oil And Natural Gas Price & Recovery Assumptions," published March 26, 2015). • Nonfuel costs per ASK to increase by up to 1% in 2015 and grow by 1%-2% in 2016. • Capital expenditure (capex) of about €3 billion in 2015 and about €2.5 billion in 2016. Key Metrics Return on Capital FFO to debt Debt to EBITDA 2014A 2015F 2016F 9.3% 9-10% 9-11% 19.7% 22-23% 23-25% 4.0x 3.5-4.0x 3.0-4.0 *Fully Standard & Poor's-adjusted. Key adjustments for 2014 include adding €3.0 billion of operating leases and €5.5 billion pension obligations to debt, and netting off approximately €2.1 billion in surplus cash. Major adjustments to EBITDA include €385 million added due to operating leases, €137 million added as dividends from equity investments, and €180 million of fair value changes. A--Actual. F--Forecast. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 3 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED. 1397213 | 301402931 Summary: Deutsche Lufthansa AG Business Risk: Satisfactory The "satisfactory" business risk profile reflects our opinion of Lufthansa's "excellent" competitive position, driven by its strong market positions, the diversity in its operations, and its good exposure to high-yield premium traffic. Our view of Lufthansa's competitive position reflects its scale as one of the largest global network carriers and one of two leading airline groups in Europe. It has strong market positions at its Frankfurt, Zurich, Vienna, and Munich hubs and offers one of the world's largest route networks. The group has balanced exposure to high-yielding, premium long-haul traffic across its route portfolio. It also has a leading domestic market position in Germany, and its regional brands are well-established. Lufthansa's good geographic diversification reduces its dependency on local economies and forms a buffer against localized event risks, in our opinion. Furthermore, Lufthansa's leading market position in aircraft MRO (maintenance, repair, and overhaul) and airline catering businesses adds stability to group earnings through the lower and different-stage cyclicality of these operations. We consider that these strengths are partly offset by Lufthansa's cost position, which we view as a competitive disadvantage, and which could lead to changes in our analysis if this is not addressed. Lufthansa faces difficulties reducing staff costs, with the pilots union likely to continue striking during 2015. In our view, the company's competitive position is also affected by the high-risk, cyclical airline industry, which is capital-intensive and subject to volatile fuel costs. Financial Risk: Significant The "significant" financial risk profile reflects our view that the company will proactively manage its debt to maintain adjusted FFO to debt above 20%. We have noted that Lufthansa has taken several creditor-friendly actions in 2015 in response to the higher pension obligations caused by the change in the discount rate for the pension liabilities. The positive actions include stopping dividend payments, repaying the JetBlue convertible bond issue early and the planned hybrid debt issuance. These action partly mitigate the increase in debt-like pension obligations and help to support financial ratios. We continue to view the pension obligation as the main weakness, which is likely to cause further impact to Lufthansa's financial risk profile. We see potential for the pension obligation to decrease in importance over time if Lufthansa is able to renegotiate its pension arrangement with its staff. This would be an important factor for ratio stability. Our current view is that Lufthansa's pension obligations could increase further over the next two years, reflecting our projections that the 10-year government bond yield could reduce from the rates in December 2014, mainly due to the monetary stimulus taken by the European Central Bank. Liquidity: Strong We view Lufthansa's liquidity as "strong" under our criteria. We project that the company's sources-to-uses ratio will exceed 1.5x in 2015 and 1x in 2016. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 4 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED. 1397213 | 301402931 Summary: Deutsche Lufthansa AG Principal Liquidity Sources Principal Liquidity Uses • Company reported cash of €2.7 billion; • €755 million of committed credit line availability with maturity beyond 12 months; and • About €1.9 billion of cash flow from operations under our base case scenario over the next 12 months. • €3.0 billion of capex; and • €750 million of debt repayments. Other Credit Considerations No modifiers affect the rating. Ratings Score Snapshot Corporate Credit Rating BBB-/Stable/A-3 Business risk: Satisfactory • Country risk: Low • Industry risk: High • Competitive position: Excellent Financial risk: Significant • Cash flow/Leverage: Significant Anchor: bbbModifiers • Diversification/Portfolio effect: Neutral (no impact) • Capital structure: Neutral (no impact) • Financial policy: Neutral (no impact) • Liquidity: Strong (no impact) • Management and governance: Strong (no impact) • Comparable rating analysis: Neutral (no impact) Related Criteria And Research • Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014 • Key Credit Factors For The Transportation Cyclical Industry, Feb. 12, 2014 • Group Rating Methodology, Nov. 19, 2013 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 5 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED. 1397213 | 301402931 Summary: Deutsche Lufthansa AG • • • • Corporate Methodology, Nov. 19, 2013 Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013 Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 Business And Financial Risk Matrix Financial Risk Profile Business Risk Profile Minimal Modest Intermediate Significant Aggressive Highly leveraged Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+ aa/aa- a+/a a-/bbb+ bbb bb+ bb a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+ bbb/bbb- bbb- bb+ bb bb- b Weak bb+ bb+ bb bb- b+ b/b- Vulnerable bb- bb- bb-/b+ b+ b b- Strong Satisfactory Fair Additional Contact: Industrial Ratings Europe; [email protected] WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 5, 2015 6 THIS WAS PREPARED EXCLUSIVELY FOR USER KATE MADUREIRA. 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