CRISIL downgrades ratings for SpiceJet to 'B' as business takes hit

Topics SpiceJet | Crisil | Coronavirus

The outlook revision reflects the expectation of further deterioration in SpiceJet's business risk profile amid the Covid-19 pandemic.
Rating agency CRISIL has downgraded the rating for Spicejet Ltd’s short term loans from "BB-" to "B" on significant deterioration of business risk profile.

It has also cut the outlook in rating from "positive" to "negative".

The rating actions on Spicejet are triggered by discontinuation of international operations till April 30, 2020 and suspension of domestic flights till March 31, 2020 trigged by Covid-19 outbreak.

If the closure is prolonged it may have further impact the credit profile of airline operators, including SpiceJet, CRISIL said in a statement.

Against the backdrop of a modest revenue expectation, the company will have to continue to incur fixed costs such as lease rentals and workforce costs. This will result in operating losses and a weakening of the financial risk profile. Cancellations of existing travel plans because of the Covid-19 scare will further put pressure on liquidity.

 The outlook revision reflects the expectation of further deterioration in SpiceJet's business risk profile amid the Covid-19 pandemic.

 
SpiceJet is taking steps to conserve cash like deferring lease payments and rationalisation of costs which need to be monitored. Moreover, aviation turbine fuel (ATF) prices have already corrected by 20% during March 2020 and there could be further correction given significant decline in global crude prices. This should help contain some losses and can benefit operating margins once operations normalize.

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Furthermore, any steps undertaken by the government to support liquidity will remain a key monitorable. In case the pandemic worsens, there could be further weakening of its financial risk profile.

Meanwhile, it placed ratings for three international airports on watch. These are GMR group run Delhi, Hyderabad, and Prem-Vasta promoted Fairfax Holdings Bengaluru International Airport.

Negative watch on ratings follows measures taken by central and various state governments towards containment of COVID-19 which includes advisories against travel. It also reflects the uncertainty currently around a time span and severity of such measures for containment of COVID-19 pandemic.

Fall in traffic would lower aero revenues such as passenger and aircraft charges, CRISIL added.


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