Australia and New Zealand Airports - Uncertain Recovery Keeps Downward Bias High July 2020 - S&P Global
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Australia and New Parvathy Iyer Senior Director, Infrastructure Ratings
Meet Vora Associate Director, Infrastructure Ratings
Zealand Airports
Sonia Agarwal Associate, Infrastructure Ratings
Uncertain Recovery Keeps Downward Bias High July 2020Key Takeaways
Airports’ traffic recovery to hinge on domestic policies and
travel, with international traffic key for earnings quality.
Sector outlook is negative.
Cash flow squeeze, albeit with sufficient liquidity, over the
next 12 months.
Slow and prolonged recovery given second wave of
infections, government actions, consumer behavior, and
weak economic outlook.
Robust control in operating (opex) and capital expenditure
(capex) to continue into calendar 2021, and potentially 2022.
Debt covenant waivers for a few airports due to uncertainty.Traffic Recovery –
Best Estimates
3Airports – Long Haul To Pre-COVID Levels
– Domestic traffic could recover by 2022/2023 and international by 2024/2025
Our Global Recovery Estimates Are Slightly Lower Than IATA's
Overlaid with regional factors for rated airports
S&P view -- Total pax IATA -- Domestic IATA -- International
120 120
110 110
100 100
Index: 2019 = 100
Index: 2019 =100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
2019 2020 2021 2022 2023
Calendar year
Pax--Passengers. Source: S&P Global Ratings, International Air Transport Association (IATA) Economics, May 13, 2020.
See: Airports Face A Long Haul To Recovery, published May 28, 2020.
4Recovery Path:
Domestic-Led, International In Late 2020
% Mix Of Domestic And International Traffic
Pacific’s robust domestic traffic, unlike for the hub airports of Domestic
Hong Kong, Singapore, and Europe. International
Major capital city airports
Relatively strong domestic airlines—Qantas Airways Ltd. Sydney, Melbourne, Auckland
(Australia) and Air New Zealand (NZ), with services from 45% - 70%
sovereign-owned Asian or Middle Eastern airlines.
Dampened competition upon rebirth of Virgin Australia as a 30% - 55%
smaller airline, but some regional airlines are willing to add Other major airports
intrastate capacity. Brisbane, Perth
Trans Tasman ‘bubble’ likely first step for international travel. 70% - 75%
Airlines’ choice of airports as capacity ramps up to influence
recovery trend-line. 25% - 30%
Loss of high-spending Chinese tourists due to travel Smaller airports
restrictions to disproportionately affect larger gateway Christchurch, Wellington, Adelaide
airports. Perth and Brisbane helped by intrastate traffic 75% - 90%
driven by mining industry.
10% - 25%
Source: Company data as of 2019, S&P Global Ratings.
5Rated Pacific Airports:
Our Estimated Recovery Path
Major Capital City Airports: Sydney, Melbourne, Brisbane, And Auckland
Domestic 50%-60% and international at 20%-30% of pre-COVID levels by June 2021
Sydney Melbourne Brisbane Auckland IATA
120 120
100 100
Index: 2019 = 100
Index: 2019 = 100
80 80
60 60
40 40
20 20
0 0
2019 2020 2021 2022 2023
Calendar year
IATA--International Air Transport Association. Source: S&P Global Ratings.
6Rated Pacific Airports (2):
Our Estimated Recovery Path
Other Capital City Airports: Perth, Adelaide, Christchurch And Wellington Airports
Perth influenced by mining traffic; Adelaide, Christchurch, and Wellington by high domestic travel
IATA Perth Adelaide Christchurch Wellington
120 120
100 100
Index: 2019 = 100
Index: 2019 = 100
80 80
60 60
40 40
20 20
0 0
2019 2020 2021 2022 2023
Calendar year
IATA--International Air Transport Association. Source: S&P Global Ratings.
7Extraneous Risks To Forecast Recovery
– Visibility and stability of the recovery will be key
Second wave:
– Extent of fallout from potential second wave can derail recovery
Government actions:
– Unknown quarantine measures in different countries; restriction on destinations and
flights; response to second wave; countries at varying control levels of COVID-19.
Global geopolitical and economic factors:
– Global economic weakness, geopolitical tensions, poor business-related travel.
Airline health to dictate available capacity:
– Potential reduction in airline capacity into Australia, demise of low cost airlines, slow
return of some airline services due to poor demand.
Passenger behavior:
– Low propensity to travel amid health concerns; discretionary spending reduced due
to weak economic conditions.
8Airports’ Response To
COVID-19 Risks
9Airports’ Steps To Counter Fallout
Auckland Airport Melbourne Airport Brisbane Airport Sydney Airport
Equity issuance of NZ$1.2 Suspended dividends for Dividend suspension for Additional A$850 million in
billion fiscals 2020 and 2021 fiscals 2021 and 2022 bank lines
Dividend suspension until Opex controls and capex Monetization of cross- Opex cuts
December 2021 reduction in fiscals 2020 and currency swaps
2021, active management Capex controls, minimum
Opex control and substantial Opex reduction; capex plans
capex reduction Strong liquidity through reduced or deferred
additional bank lines Suspended dividends for
Solid liquidity through recent 1H2020; suspension for
Australian medium-term note 2H2020 also likely
issue
Perth Airport Adelaide Airport Christchurch Airport Wellington Airport
Opex reduction Monetization of cross- Some opex control Opex control and capex
currency swaps flexibility
Capex reduction and growth Capex control for the next two
plan deferred for now Opex and capex controls years No dividends for fiscal 2021
(typically paid in next fiscal
Monetization of cross- Suspended dividends for Dividend suspension for year)
currency swaps fiscal 2021; moderated for 2HY2020, fiscals 2021 and
fiscal 2022 2022 Standby equity support
Suspended distributions for
2H2020 and fiscal 2021 Liquidity support through Additional bank lines Additional bank lines
additional A$150 million bank
lines
10Liquidity Adequate
Moderate Debt Maturities; 2020 Maturities Largely Covered
6,000
5,000
4,000
Mil. A$
3,000
2,000
1,000
0
2020 2021 2022 2023 2024 2025 Thereafter *
Calendar year
*Not to scale. Approximately A$10.8 bil. Source: S&P Global Ratings, Data as of June 30, 2020.
Cash And Committed Undrawn Lines Sufficient To Take Care Of Maturities At Least For Next 12 Months
Strong Strong Strong Strong
2,500 2,500 Cash + undrawn lines
2,000 2,000 FY2022 maturity
Mil. A$ / NZ$
1,500 1,500
FY2021 maturity
1,000 1,000
Strong liquidity
500 500
0 0
Sydney Melbourne Perth Auckland Brisbane Adelaide Wellington Christchurch
Airport Airport Airport Airport Airport Airport Airport Airport
Data for fiscal year ending June 30. New Zealand airports represented in mil. NZ$. Source: S&P Global Ratings.
11Forecast Financials – Broad Assumptions
Focus on the years ending June 30, 2021 and 2022. Assumptions will vary across airports
due to their revenue composition (see individual reports published on June 16, 2020 on eight
rated airports in Australia and NZ).
– All revenues linked to passenger numbers, including retail and car parking. Domestic to
ramp up slowly from 3Q2020 and international from 4Q2020.
– Minimum guaranteed retail income unlikely to return for one to two years.
– Some stress on property income due to either rental waivers or deferrals or potential
vacancy levels from economic fallout.
– Security charges to remain pass through.
– Controlled opex in 2021 and rising slowly in line with traffic. Still, EBITDA margins to be
under pressure in 2021 before recovering slowly.
– Fiscal 2021 a weak phase supported by liquidity, with sharp recovery in metrics likely from
fiscal 2022 in line with ramp-up in traffic.
– Further weakness in 2021 and prolonged recovery in international traffic to remain the
key risks at this stage.
12Varied Financial Buffers Across Rated Airports
– Most airports have cut capex and opex for the next 12-24 months at least.
– Airports to be covenant compliant or have obtained covenant waivers until at least June 2021.
– Dividend reduction/suspension and equity raising are (Auckland) credit positives.
Largely Negative Outlook Reflect Uncertain Recovery And Low Financial Buffers
Forecast range (2020-2022) Last actual year-end (2019) Downside trigger
25
Rating Rating
lowered lowered
20
FFO / debt (%)
15
10
5
0
Sydney Melbourne Auckland Brisbane Perth Adelaide Christchurch Wellington
Stable Stable
outlook outlook
Source: S&P Global Ratings.
13Extended Flexibility On Capex/Dividends Possible
– Most airports have cut capex, opex, and dividends for the next 12-24 months at least.
– 2020-2023—forecasts.
Capex/Dividend Could Moderate Beyond 2022 In line With Recovery Path
3,500 Pre-COVID Post-COVID
3,000
2,500
2,000
Mil. A$
1,500
1,000
500
0
2020 2021 2022 2023 2020 2021 2022 2023
Capex Dividend
Fiscal years
Note: Year-ending for all airports is June 30, except Sydney Airport which is Dec. 31, and Wellington Airport which is Mar. 31. Source: S&P Global Ratings.
14Sector Outlook – Negative
– Forecasts will likely be reviewed multiple times due to evolving COVID situation.
– Until COVID-19 is under control in major countries, a return to pre-pandemic levels of international
travel remains hard to predict.
– Changes to sovereign policies on border closure is a variable factor.
– Steady ramp-up of domestic travel in NZ since mid May 2020 is an encouraging sign, but trans-
Tasman travel could be delayed to late 2020/early 2021 due to recent surge in cases in Australia.
– Restart of Australian domestic travel is very slow and delayed due to rise in infection in some states
(mainly Victoria). Still, some state borders are open, and Western Australia and Queensland face
good intrastate travel.
– Visibility and confidence in the recovery unlikely before the end of 2020
– Weak fiscal 2021 will affect cash flows and metrics, which we factored in the ratings.
– Will fiscal 2022 be potentially at risk if rebound is slower than our estimates?
– While airports have cut costs, improved liquidity, and protected against covenant breaches,
the next 12 months will tell if this is sufficient or more actions are needed to maintain rating levels.
– Entities with stable outlook: Auckland Airport (large equity raising supports balance sheet) and
Christchurch Airport (linked to its majority government owner).
15Appendix
16Rating Action: Australia And New Zealand
Rated Pacific Airports Rating Link to Research Update
Southern Cross Airports Corp. Holdings Ltd. BBB+/Negative/-- Sydney Airport, June 16, 2020
Australia Pacific Airports Corp. Ltd.* BBB+/Negative/-- Melbourne Airport, June 16, 2020
Brisbane Airport Corp. Pty Ltd. BBB/Negative/-- Brisbane Airport, June 16, 2020
Perth Airport Pty Ltd. BBB/Negative/-- Perth Airport, June 16, 2020
Adelaide Airport Ltd. BBB/Negative/-- Adelaide Airport, June 16, 2020
Auckland International Airport Ltd. A-/Stable/A-2 Auckland Airport, June 16, 2020
Christchurch International Airport Ltd. * BBB+/Stable/A-2 Christchurch Airport, June 16, 2020
Wellington International Airport Ltd.* BBB/Negative/A-2 Wellington Airport, June 16, 2020
*Rating change, lowered by one notch in June 2020. Related research: Airport Long Haul, published May 29, 2020.
17Airport Rating Actions: Europe And Asia
European Rated Airports Rating as of July 28, 2020 Rating in Feb 2020
Aeoports de Paris A/Negative A+/Negative
Aeroporti di Roma * BB+/CreditWatch/B BB+/CreditWatch/B
Avinor AS (Norway) A/Negative/A-1 AA-/Stable/A-1+
Daa PLC (Dublin and Cork airports) A-/ Negative/A-2 A/Stable/A-1
Flughafen Zurich Airport A+/Negative/-- AA-/Stable/--
Gatwick Funding Ltd Senior secured: BBB/WatchNeg Senior secured: BBB+/Negative
Heathrow Funding Ltd Class A: BBB+/WatchNeg Class A: A-/Negative
Heathrow Funding Ltd Class B: BBB- /WatchNeg Class B: BBB/Negative
Royal Schiphol Group N.V. A/Negative/A-1 A+/Stable/A-1
Asian Rated airports Rating as of July 28, 2020 Rating in Feb 2020
Airport Authority of Hong Kong § AA+/Stable AA+/Stable
Taoyuan International Airport (Taiwan) † A+/Stable A+/Stable
GMR Hyderabad International Airport Ltd BB-/Negative BB+/Stable
Delhi International Airport Ltd B+/WatchNeg BB /Negative
* SACP lowered by two notches to 'a' from 'a+'; rating constrained by Parent, Atlantia. § SACP lowered by 3 notches to 'a-' since February 2020. AAHK rating equalised
to Hong Kong government. † SACP lowered by one notch to 'bbb+' from 'a-'. Rating incorporates support from the Taiwan government.
18Related Research: Global And Macroeconomics
– S&P Global Ratings COVID-19 Research Page
– Top 10 Investor Questions On Our Ratings Process, June 4, 2020
– Historically Low Ratings in the Run-Up to 2020 Increases Vulnerability to the COVID-19
Crisis, May 28 2020
– Economic Research: Asia-Pacific Losses Near $3 Trillion As Balance Sheet Recession
Looms, June 25 2020
– Credit Conditions Asia-Pacific: China First To Recover, June 30, 2020
– The Shape Of Recovery: Uneven, Unequal, Uncharted, July 1, 2020
– Airports Face A Long Haul To Recovery, May 28, 2020
– Three Australian And New Zealand Airports Downgraded, Five Affirmed; Outlook Negative
On Six Airports, Stable On Two, June 15, 2020
– Rating Actions Taken On Seven European Airports Due To More Protracted Passenger
Recovery, July 15, 2020
19Analytical Contacts
Richard Langberg
Analytical Manager, APAC
Infrastructure
+ 852-2533-3516
richard.langberg
@spglobal.com
Richard Timbs Parvathy Iyer Meet Vora
Corporate and Senior Director, Associate Director,
Infrastructure Sector Lead Infrastructure Ratings Infrastructure Ratings
+ 61-2-9255-9824 + 61-3-9631-2034 + 61-2-9255-9854
richard.timbs parvathy.iyer meet.vora
@spglobal.com @spglobal.com @spglobal.com
Sonia Agarwal Alexander Dunn Harshvardhan Sathe
Associate, Infrastructure Associate, Infrastructure Rating Analyst,
Ratings Ratings Infrastructure Ratings
+61-3-9631-2102 + 61-3-9631-2120 + 61-3-9631-2118
sonia.agarwal alexander.dunn harshvardhan.sathe
@spglobal.com @spglobal.com @spglobal.com
20Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified,
reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial
Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors,
officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not
responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data
input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING
WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any
direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost
profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's
opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and
do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not
a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not
act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and
undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not
necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the
right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or
suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business
units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic
information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions
and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.spcapitaliq.com (subscription) and may be
distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at
www.standardandpoors.com/usratingsfees.
Australia: S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related
research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.
spglobal.com/ratings
21You can also read
