Moody’s has upgraded the credit rating of Avianca and its loyalty program LifeMiles from B3 to B2. This improvement is attributed to Avianca’s “solid execution of the business plan” after its restructuring under Chapter 11, which included a “strengthened capital structure and lower costs,” as well as a change in its business model, as detailed by the airline in a statement.
In the realm of credit risk ratings, an improvement like this is significant. Credit ratings, provided by agencies such as Moody’s, assess a company’s ability and likelihood to meet its debt obligations. A shift from B3 to B2 indicates an improved perception of the company’s credit risk. These ratings range from ‘C’, indicating a high risk of default, to ‘Aaa’, which represents the highest credit quality.
According to Avianca, the B2 rating from Moody’s reflects the company’s “leadership position in Latin America and its favorable cost structure,” in a context where it exceeded expectations in the third quarter of 2023, with an EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) that exceeded projections by $63.7 million.
The stable outlook granted by Moody’s implies that Avianca’s credit metrics are expected to continue strengthening. This is based on the expectation of an increase in capacity through recently added aircraft and the anticipation that the company’s liquidity will remain strong over the next 12 to 18 months. Moody’s points to Avianca’s conservative approach to liquidity, cost management, and capacity as key factors in this assessment.
