NOVEMBER 17TH, 2016

Fitch: Rating Outlook for Latin American Airlines Remains Negative

NEW YORK—(BUSINESS WIRE)—Fitch Ratings’ 2017 Rating Outlook for the Latin American airlines sector remains negative as most of the rated airlines currently have Negative Rating Outlooks. Improvements in the sector’s business fundamentals started to reveal better margins and lower leverage ratios during the second half of 2016. The consolidation of this trend could result in a change in the sector rating outlook from negative to stable during 2017.

The main Latin American markets are expected to maintain healthy growth in traffic in 2017. The domestic Spanish-speaking countries and international segments are anticipated to continue reaching mid- to high-single-digit growth mostly reflecting stable macroeconomic and business environments. Brazilian domestic traffic is expected to recover from 2016’s collapse in 2017, driven by the improvement in macroeconomic conditions.

Fitch expects most Latin American carriers to exhibit declines in gross adjusted leverage due to better operational performance and limited new debt. However, Fitch anticipates gross adjusted leverage for LATAM Airlines Group S.A. (LATAM; ‘B+’/Negative Outlook), Avianca Holdings S.A. (Avianca Holdings; ‘B’/Negative Outlook) and Gol Linhas Aereas Inteligentes S.A. (GOL; ‘CC’) to remain high at the end of 2017. Fitch sees the main carriers’ debt service payments and targeted capex as high relative to cash flows, limiting liquidity improvements.

The increasing participation of global carriers in Latin America’s main markets through joint ventures or direct acquisitions of minority stakes is anticipated to continue during 2017. Fitch views this trend as a positive credit factor as this process should be beneficial for Latin American airlines in terms of capital structure, liquidity, corporate governance and a more balanced relationship between business growth and profitability.

Additional information is available at ‘www.fitchratings.com’.

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2017 Outlook: Latin American Airlines (Clearing Skies but Keep Seat Belt Fastened)

https://www.fitchratings.com/site/re/890221