Moodyʼs gives Wizz Air stable ʼBaa3ʼ rating

Transport

Moodyʼs Investors Service, has assigned a first time "Baa3" long-term issuer rating to Wizz Air Holdings, which operates what it calls an "ultralow-cost airline" operating short- and medium-haul point-to-point routes. The outlook is stable, according to a press release sent to Budapest Business Journal.

"Wizz Airʼs Baa3 rating reflects its growing and dominant market position in Central and Eastern Europe. This is underpinned by the companyʼs ultra-low-cost business model and strategy to stimulate growth by creating new and more frequent travelers, as well as capitalizing on stronger GDP growth relative to the rest of Europe," Jeanine Arnold, Moodyʼs vice president-senior credit officer said. 

"To meet strong passenger demand, Wizz Air plans to significantly invest in new aircraft, which will likely drive negative free cash flows over the next few years. However, Wizz Air has excellent liquidity and this new aircraft will support the companyʼs competitive position and ensure its operating profit margins remain one of the strongest in the European airline industry," Arnold added.

Wizz Airʼs rating is supported by its leading market position in CEE: 39% of lowcost airline traffic as at  March 31, 2017. 

Wizz Airʼs strategy serves to stimulate growth by creating new and more frequent travelers, and this combined with strong GDP growth in CEE relative to the rest of Europe, is expected to drive substantially stronger growth in passenger numbers and revenues compared with similarly-rated peers at a CAGR of around 20% (2017- 2021).

Due to the companyʼs stronger cost base relative to peers, Moodyʼs also expect adjusted EBIT margins to remain comparatively strong at just below 20% over the next few years, and for these to continue to support operating cash flows.

Investment plans include a greater number of A321 aircraft, with higher seating capacity than A320 aircraft, as well as more fuel-efficient, new engine option (neo) aircraft. Wizz Air also plans to reduce ownership costs by financing a greater proportion of aircraft through a combination of cash and debt rather than solely through sale and lease backs as it has done in the past.

This is likely to lead to sizeable negative free cash flow (FCF) through 2021 of more than EUR 700 million on a Moodyʼs adjusted basis (over EUR 100 million including pre-delivery payment refunds).

Downside risks such as higher staff and fuel costs as well as competition in CEE from low-cost airlines such as the unrated Ryanair could further weaken cash flow and leverage.

"This said, the company is committed to maintaining prudent financial policies and ensuring leverage does not exceed current levels. Wizz Airʼs market position, cost base, route and fleet strategy provide it with the operational flexibility, while further sales and lease backs of highly liquid A321 aircraft provide financial flexibility if needed," Moodyʼs said.

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