Scope has today placed the rating assigned to the notes issued by PR Aircraft S.A. - Compartment 1 under review for downgrade in regards to the impact of Covid-19 on airlines.
Scope Ratings has today placed under review for downgrade its A- rating on the notes issued by PR Aircraft Finance S.A. – Compartment 1 (PR Aircraft). PR Aircraft is exposed to a large number of airlines worldwide that may be affected by the slowdown in passenger numbers and the grounding of their fleets due to Covid-19.
The review for downgrade follows the current uncertainty as to whether governments and/or the European Union will take measures to ensure the continued operation of airlines most affected by Covid-19. So far, no airline has defaulted as a direct effect of the pandemic. However, several airlines have stated that government support is needed to continue operations in the short to medium term, with several already forced to ground large parts of their fleets and place employees on unpaid leave. Additionally, it is currently unknown how long current flight restrictions will last nor their eventual impacts on the airline industry.
Scope expects more clarity in the coming weeks regarding the severity of the impact on airlines and the support that will be available in the different regions. The notes will be under review for downgrade until the total impact on the industry can be determined, which will depend on the level of government support, how long traffic restrictions will continue and how fast the traffic numbers can recover once the pandemic is over.
Scope has agreed to alert investors of a potential rating downgrade if market conditions worsened, airlines do not receive government support, or both.
All loans in the portfolio are directly or indirectly secured by one or more aircraft and, in certain instances, direct recourse to a lessor.
Scope continuously monitors PR Aircraft Finance S.A. – Compartment 1.
Market value risk from Covid-19 (negative). Aircraft market values would decrease if several airlines defaulted, as this would increase the supply of aircraft in the open market. The risk is partially mitigated through PR Aircraft’s well-diversified portfolio of aircraft from several different manufacturers.
Airline probability of default (negative). The portfolio is highly sensitive to an increased probability of default of airlines in the portfolio. An increased credit risk of airline counterparties would increase the credit risk of PR Aircraft. The risk is partially mitigated through the well-diversified portfolio of a large number of airlines from several regions.
The rating could be negatively affected if Covid-19 led to airline defaults, or if the aviation industry were to undergo a cycle of abnormal and unexpected downturn volatility, for example, due to a global economic depression linked to unusually high oil prices, a change in state trade rules and regulations, or higher interest rates.