Moody's pegs easyJet's inaugural rating at Baa1 with 'stable' outlook

Moody's has assigned an inaugural Baa1 long-term issuer rating to budget airline easyJet, with a ‘stable’ outlook.

In a note to clients, Moody’s said the Baa1 rating is supported by the company's strong business profile with a broad and dense network across Europe.

Sven Reinke, senior credit officer at the ratings agency and lead analyst for easyJet, said, “The airline’s strong positioning as one of the largest European point-to-point airlines with a dense route network and leading positions at many top airports, coupled with its resilient business model throughout the economic cycle, and very strong financial profile and conservative financial policy."

Additionally, a significant proportion of easyJet's important airports - in particular London Gatwick which is the company's largest base - operate near full capacity which is a high barrier of entry for any potential competitor, Reinke added.

Moody’s added that whilst easyJet is not immune to the typical event risks of the airline industry nor volatile oil prices, demand for low priced short haul flights in Europe has continued to grow steadily, even during the recent economic downturn.

easyJet's business model is not only more resilient during an economic downturn because of its low average fares, but also because of its superior cost structure that enables it to price its product competitively.

Moody's also noted that easyJet's financial profile is very strong. "Since the end of the global recession in 2009, easyJet has steadily improved its operating performance despite the recovery of oil prices between 2009 and 2011. The company's operating profit margin improved from the low point of 2.3% in 2009 in every single year reaching 14.7% in 2015. Despite investments in its growing fleet, easyJet's financial profile materially improved over time."

Finally, the ratings agency also considers easyJet's liquidity profile to be strong, underpinned by a high balance of cash and money market deposits of £939m at the end of fiscal 2015 and a committed syndicated credit facility of $500m which is secured on A320 aircraft at a 75% loan-to-value ratio when drawn at a pre-agreed valuation. The facility was undrawn at the end of fiscal 2015 and matures in February 2021.