Fitch Ratings Issues B Rating for Avianca and LifeMiles

Big three credit rating agency Fitch Ratings has issued a B rating for Colombian airline Avianca’s  long-term foreign currency issuer default ratings and long-term local currency issuer default ratings (IDR). It also assigned a rating of ‘B’/’RR4’ to Avianca’s senior secured exit notes Tranche A-1 and Tranche A-2, total amount of $1.7 billion USD due 2028, issued by Avianca MidCo2 Limited.

“Avianca’s ‘B’ rating reflects the industry’s high cyclicality risks, the company’s solid market position in the Latin American airline passenger industry, lean cost structure, moderate leverage, with net debt/adjusted EBITDA remaining in the range of 3.0x-4.0x within the rating horizon, and good liquidity position, yet limited financial flexibility,” said the New York-based agency in its note to investors.

On the risk side, Fitch pointed to the nation’s largest carrier’s uncertain trajectory and “above-average industry risks” as it continues to regain its footing following bankruptcy.

“Medium-term uncertainties include Avianca’s ability to maintain its strong operating margins while resuming its business growth post Chapter 11 process in U.S. and under a more challenging business environment and rising fuel prices,” stated Fitch.

“Ongoing execution risks related to its new business strategy moving towards a low-cost carrier are also embedded into the analysis, but recent quarters performance have shown good progress and favorable dynamics.”

Similarly, the future of Avianca will also require high-level execution of its new business model within this challenging macroeconomic and fuel price environment.

“Avianca has been working to shift to a low-cost carrier model, focusing on a simplified and cost-efficient narrow-body operation, with limited exceptions,” stated Fitch. “Increasing aircraft utilization to around 12 hours a day, and fleet densification, with around 20% increase in seats per aircraft, have been a key pillar of the company’s goal of achieving Cask ex-fuel of 3.4 cents.”

“Due to foreign exchange valuations, inflationary pressures, changes in network and higher costs of leases,” added Fitch, “the company has already reviewed this initial guidance now to a range of 3.7-3.8 cents by end of 2023. As of Sept. 30 2023, 100% of Avianca’s narrowbody were already reconfigured and aircraft utilization was between 11h-12h/day, and Cask ex-fuel was 3.9 cents.”

Fitch Ratings also issued a B rating to LifeMiles Ltd, the loyalty program subsidiary of Avianca.

(Photo credit: Avianca)