oGovernments across
oAs such, we expect the rebound of European air traffic to be weaker than we previously foresaw, particularly in the critical summer months this year, fuelling further cash burn and debt accumulation for easyJet PLC.
oThe rollout of several vaccines has created an encouraging path back to more normal levels of social and economic activity. Assuming widespread immunization across
oWe are affirming our 'BBB-' ratings on easyJet PLC, easyJet
oThe negative outlook reflects our view that easyJet's financial metrics will remain under considerable stress in the next few quarters.
The pandemic-related lockdowns, travel restrictions, and virus variants continue to weigh on easyJet's prospects.
Governments across
We expect FY2021 to be another extremely challenging year for easyJet.
We estimate that passenger numbers will only recover to about 50% of FY2019 levels this summer. This, combined with only 13% of passenger numbers recovered in easyJet's first financial quarter (October-
We expect easyJet's credit metrics to remain under considerable stress, particularly over the next few quarters.
The airline is further adjusting capacity and cutting operating costs, having furloughed staff through the
easyJet's minimized capital expenditure (capex) in FY2021 will help moderate debt accumulation.
We estimate that capex, excluding finance lease payments, will fall to £100 million-£200 million in FY2021 (about 10%-20% of almost £1 billion spent in FY2019). This is in line with easyJet's plan to reduce capex by about £1 billion over FY2021-FY2023, having deferred the delivery of 22 Airbus aircraft to FY2027-FY2028, and eliminating all noncritical expenditure. Combined with further flexibility to end 24 aircraft operating leases, easyJet expects to reduce its fleet size to around 302 aircraft in FY2021, an overall 10% smaller fleet than at the beginning of the pandemic. We also recognize that easyJet has further flexibility to adjust capex in FY2022 and beyond if air traffic does not recover as expected.
We see diminished headroom on the investment-grade rating for operational setbacks.
Still, easyJet's efforts to contain costs and safeguard cash should contribute to the airline's financial recovery commencing in FY2022 (provided passengers return to flying) and help maintain the rating. easyJet had about £2.5 billion of liquidity sources as of
We expect easyJet's credit metrics to recover significantly in FY2022 and FY2023.
We now see adjusted EBITDA rising to £500 million-£700 million in FY2022 (about 65% of FY2019 levels) and £700 million-£850 million in FY2023 (about 80%). We assume a significant rebound in air traffic starting in late 2021 (versus by the middle of 2021, as we forecast previously). This is underpinned by our view that widespread immunization looks to be achievable by most developed economies by the end of third-quarter calendar 2021. Consequently, we believe that the recovery in easyJet's credit measures will be delayed, with diminished headroom under the investment-grade rating for operational setbacks, particularly in the near term. We forecast that adjusted funds from operations (FFO) to debt will rebound to 20%-30% in FY2022, and over 30% in FY2023. However, low visibility regarding the pandemic and recessionary trends--and their impact on passenger volumes--adds significant uncertainty to our forecasts.
easyJet's continued access to external funding is an important factor that support our ratings.
The airline has obtained over £4.5 billion of additional financing since the pandemic began. This includes the £600 million from the
The negative outlook reflects our view that easyJet's financial metrics will remain under considerable stress in the next few quarters. In addition, there is also high uncertainty regarding the pandemic and related recession, and how they will affect air traffic demand and the expected improvement in the airline's financial position.
We would lower the ratings if passenger demand falls short of our expectations of a significant recovery from late 2021, hindering the turnaround in easyJet's cash flow generation. We could also downgrade the company if we expect that weighted-average adjusted FFO to debt will not recover to at least 23%. This could occur if the pandemic cannot be contained, resulting in prolonged lockdowns and travel restrictions, and passengers remain reluctant to fly. We could also lower the ratings if adjusted debt increases beyond our expectations and management does not take sufficient and timely measures to restore its debt leverage profile.
We could also lower the rating if industry fundamentals weaken structurally and passenger demand appears to be consistently lower than before, impairing easyJet's competitive position and profitability.
To revise the outlook to stable, we would need to be confident that demand conditions are normalizing and the recovery is robust enough to enable easyJet to partly restore its debt leverage profile, such as adjusted FFO to debt increases sustainably to at least 23%, alongside a stable and sustainable liquidity position. We would expect this to be further underpinned by prudent capex and shareholder returns.
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oEurope's 2021 Air Passenger Traffic Likely To Stall At 30%-50% Of 2019 Level,
oEU Could Meet 70% Vaccination Target By Late July If Production Steps Up,
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