S&P Global Ratings
oThe spread of the COVID-19 pandemic continues to severely disrupt global air travel, with most airlines grounding most or all of their fleets.
oWe expect that many airlines will try to delay taking delivery of new planes until at least the end of the summer 2020, or cancel orders where they can, which will likely result in Airbus and
oWe therefore consider that Rolls-Royce's civil aerospace division will likely be affected by lower engine sales and lower fly-by-the-hour receipts from airlines in 2020.
oWe are therefore placing our ratings on Rolls-Royce on CreditWatch with negative implications.
oWe plan to resolve the CreditWatch as soon as we can further assess and quantify the impact of COVID-19 on
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Rolls-Royce's civil aerospace division generates revenues and cash flows in two primary ways. First, from the sale of new engines for large passenger aircraft, predominantly for wide body airplanes built by Airbus, but also
However, as governments attempt to halt the spread of the COVID-19 pandemic, with most global and regional air travel shut down, we note that the majority of airlines have grounded most or all of their fleets. We currently expect a likely fall of about 30% in airline flying hours in 2019 (see "Ratings On European Airlines Lowered And Placed On CreditWatch Negative Due To Coronavirus Outbreak," published
Prior to the spread of the COVID-19 pandemic and its sudden and severe impact on the global airline industry, our expectations for 2020 were that Rolls-Royce would exhibit overall top-line growth in the low-to-mid single-digits in 2020 and 2021 (see "
We previously indicated that we would lower the ratings if we thought that the chances of a recovery in Rolls-Royce's profitability, cash flows, or credit metrics had slowed to below our expectations for 2020. Specifically, if adjusted EBITDA margins were below 11%, FFO to debt were to remain sustainably below 45%, and if the company achieved at least breakeven free operating cash flow (FOCF) in 2020 and significantly positive FOCF in 2021. We now believe that there is a material risk that Rolls-Royce's profitability, cash flows, and credit metrics could be below our expectations for 2020.
We plan to resolve the CreditWatch as soon as we can further assess and quantify the impact of COVID-19 on
Related Criteria
oGeneral Criteria: Group Rating Methodology,
oCriteria | Corporates | General: Corporate Methodology: Ratios And Adjustments,
oCriteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings,
oGeneral Criteria: Methodology For Linking Long-Term And Short-Term Ratings,
oCriteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers,
oCriteria | Corporates | Industrials: Key Credit Factors For The Aerospace And Defense Industry,
oCriteria | Corporates | General: Corporate Methodology,
oGeneral Criteria: Country Risk Assessment Methodology And Assumptions,
oGeneral Criteria: Methodology: Industry Risk,
oGeneral Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities,
oGeneral Criteria: Use Of CreditWatch And Outlooks,
oAirbus 'A+/A-1+' Ratings Put On Watch Negative On Aircraft Delivery Delays Linked To COVID-19,
oBoeing Co. Announces A Two-Week Shutdown Of Its Seattle-Area Operations, Ratings Remain On CreditWatch Negative,
oRatings On European Airlines Lowered And Placed On CreditWatch Negative Due To Coronavirus Outbreak,
oRolls-Royce PLC 'BBB-' Ratings Affirmed; Outlook Revised To Stable On Forecast Improvement In Financial Performance,
oIndustry Top Trends 2020: Aerospace And Defense,
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