Credit ratings agency Moody’s Investors Service revised Dubai Aerospace Enterprise (DAE)’s outlook to stable from negative and affirmed its Baa3 issuer rating, citing the company's strong liquidity position and capital management and as air travel shows signs of recovery.
The affirmation is also based on Moody's expectation that challenges to Dubai lessor's profitability and earnings will be gradually alleviated by growing air travel volumes through 2023.
“Demand for leased aircraft will rise as air carriers rebuild capacity to serve strengthening air travel demand, helping to improve DAE's profitability and cash flow metrics over the next 12 to 18 months,” Moody's said.
DAE is one of the world’s largest aircraft leasing companies with offices in a number of countries. The company had a total owned, managed and committed fleet of 377 aircraft as of March 31. The aggregate book value of its owned fleet, including finance lease and loan receivables, was $11.6 billion while the estimated value of its managed fleet was $1.4bn.
The aviation sector is improving gradually after the movement restrictions imposed to curb the Covid-19 pandemic dealt it a severe blow. Air travel demand is beginning to recover as countries reopen borders, leading to higher aircraft movements.
DAE is well placed to tap into this recovery since its multiple sources of liquidity provide over 200 per cent coverage of cash requirements for operating expenses, debt maturities and aircraft purchase commitments for the year commencing April 2021, Moody's estimates.
“DAE's liquidity is aided by ample borrowing availability under its $3bn revolving credit facilities, as well as well-distributed debt maturities and moderate aircraft purchase commitments,” it said.
The ratings agency also expects leasing to remain an important source of aircraft acquisition capital for the airline industry. Recovery will provide new leasing opportunities that will help to revive DAE's cash flows and earnings, Moody's added.
“DAE's liquidity and access to capital should position it well to pursue opportunities to acquire leased aircraft as demand conditions improve, strengthening revenues and cash flow to levels that align with expectations for the company's existing ratings.”
Earlier this year, DAE placed an order to buy 15 Boeing 737 Max jets for $1.8bn to tap into rising travel demand.
Moody's could upgrade DAE's ratings if the company maintains stronger liquidity compared to its peers and recovery in air travel volumes accelerates, it said.
