WestJet Airlines Ltd. Downgraded To 'B' From 'B+' And Kept On CreditWatch Negative On COVID-19 Uncertainty

  • The effect COVID-19 is having on air travel is much worse than we had expected earlier this year, with many countries around the world, including Canada, temporarily restricting non-essential cross-border travel.
  • We believe the steep drop in air traffic at WestJet Airlines Ltd. stemming from the COVID-19 outbreak will contribute to earnings and credit metrics that are meaningfully weaker than we previously expected, including adjusted funds from operations (FFO)-to-debt well below 15% and adjusted debt-to-EBITDA above 6.0x in 2020.
  • As a result, on March 23, 2020, S&P Global Ratings lowered its ratings on WestJet by one notch, including its issuer credit rating on the company to 'B' from 'B+', and maintained all the ratings on CreditWatch with negative implications.
  • As of now, we expect traffic to begin to recover in late 2020, but also recognize there is a high degree of uncertainty in the timing of a recovery that, if pushed out later than we expect, is likely to result in another downgrade.
  • We expect to resolve the CreditWatch when the effects of the COVID-19 outbreak on WestJet's financial position and timing of a recovery become more apparent.
TORONTO (S&P Global Ratings) March 24, 2020—S&P Global Ratings today took the rating actions above.

We expect earnings and cash flow to fall significantly in 2020 primarily due to route suspensions and lower demand for air travel from passenger concerns of contracting COVID-19.

We expect concerns regarding the spread of COVID-19 to result in a severe decline in air travel this year because many countries around the world have temporarily restricted non-essential cross-border travel, including Canada. In our view, this should result in earnings and credit metrics that are much weaker than we previously expected, including a decline in adjusted EBITDA of more than 35%, adjusted FFO-to-debt well below 15%, and adjusted debt-to-EBITDA above 6.0x in 2020.

The CreditWatch negative placement reflects the risk of further downside related to the COVID-19 outbreak on WestJet's operating performance and liquidity. We acknowledge the high degree of uncertainty about the severity of the impact of COVID-19 on the company, and the timing of the airline industry's eventual recovery. As of now, we expect traffic to begin to recover in late 2020, but believe WestJet's liquidity position could weaken meaningfully if delayed beyond this point. In this scenario, we are likely to downgrade the company. We expect to resolve the CreditWatch when the effects of the outbreak on WestJet's financial position and timing of a recovery become more apparent.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com