S&P improves TAP’s risk rating

Following the example of Moody’s, the ratings agency Standard & Poor’s has improved the risk level of Portuguese airline TAP from B+ to BB- with “stable outlook”.

It says it expects more robust results and a higher level of liquidity, increasing the airline’s capacity to reduce its debts. The “moderate possibility” of an extraordinary funds from the Portuguese government has also contributed to the improved rating rise.
“We now anticipate that TAP will generate an adjusted EBITDA of at least €900 million this year in comparison to our forecast in April of €770-€780 million, sustained by stronger profitability than expected in a more robust environment in terms of passenger traffic”, said the ratings agency in a communiqué released on Tuesday.
TAP posted a recurrent EBITDA of €752.4 million in the first nine months of the year. S&P considers that this record result “might not be sustainable beyond 2023 because of an expected pressure from rising costs on margin”, but believes that 2024 will be above results posted in 2022.
It is the second rating rise for TAP in less than a month. At the start of November, Moody’s upped TAP’s debt risk rating by one level from B2 to B1, stressed the “strong and continuous improvement in the airline’s operational profitability”.
S&P says that TAP’s reduced fleet, restricted by the restructuring plan, and airport congestion at Lisbon “will limit the company’s scope for growth in the medium term. On the other hand, “high rates of profitability should alleviate the pressure on TAP’s expenditure, which have come from higher costs of jet fuel, as well as higher European carbon taxes, and inflation.”
The agency revised upwards the stand-alone credit profile of the airline from B+ to B and a long term rating from B+ to BB- which is more important for investors.
S&P sees the company’s adjusted financial debt should reduce to around €3.5Bn at the end of 2023 compared to the €3.7Bn at the end of 2022 and “and probably will reduce even more in 2024.”
The prospect for TAP is “stable”, which reflects the expectation that passenger traffic will remain at pre-pandemic levels for the next 12 months, assuming macro-economic and geopolitical conditions do not unexpectedly deteriorate and tariffs stay close to recent levels.”