S&P cuts Airbus outlook amid concern over deliveries, advances


© Reuters. FILE PHOTO: An Airbus assembly plant in Seville, southern Spain

By Tim Hepher

PARIS (Reuters) – Ratings agency Standard & Poors placed Airbus (PA:) on its watch list for a possible downgrade as doubts surfaced over the future level of aircraft deliveries and advance payments from airlines battered by the coronavirus crisis.

Airbus said earlier this week a large majority of its airlines continued to pay pre-delivery payments or advances against future deliveries, and that it would adjust production to cope with any gaps.

But S&P said it was concerned delays could weaken the company’s A+ credit profile and industry sources said the pre-delivery payments currently flowing through were ones that had already received financing before the crisis began.

“In the short term, we assume no deliveries or pre-delivery payments, but that Airbus will continue production,” said S&P Global Ratings credit analyst Tuomas E. Ekholm in a statement.

The move came a day after Fitch cut the outlook on Airbus debt to negative, citing the risk to its A- rating of deferrals of aircraft deliveries. Both agencies noted Airbus’ historically strong liquidity but Fitch said its profile had been affected in part by a recent record 3.6-billion-euro bribery fine.

Based on Airbus’ average delivery and production volumes, S&P estimated a funding gap of 5 billion euros (4.5 billion pounds) a month.

Reuters reported earlier in March that Airbus had signalled a cash requirement of some 5.5 billion euros a month in discussions with the German government.

Airbus this week said it had boosted liquidity to 30 billion euros by adding 10 billion to credit lines on a commercial basis. It has not so far followed the U.S. aerospace sector in appealing for government-backed funds to tackle the crisis.

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It also said it could use its Airbus Bank subsidiary to tap liquidity from the European Central Bank. Airbus bought the small Bavarian bank in 2014.

Airbus first looked at acquiring a bank in 2010 at a time then it wanted a safe harbour for its ample cash while banks were seeing their own ratings cut, but the aircraft and real estate lender is now seen as a potential source of liquidity.

According to the bank’s 2018 report, it had a tender potential at the Bundesbank worth 105 million euros as well as committed Airbus credit lines worth 467 million and interbank lines for 95 million at the end of that year.

Beyond that, ECB-eligible bonds can if needed be transferred from Airbus to Airbus Bank and used as collateral to generate liquidity by participating in ECB tenders via the Bundesbank, according to people familiar with the system.

Fitch said Airbus benefits from ECB liquidity support under a 750-billion-euro “Pandemic Emergency Purchase Programme,” which enables the purchase of Airbus commercial paper as long as the coronavirus crisis lasts.

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