TEXT-Fitch:Not all 'BBB' European aerospace & defence are alike
Jan 28 - In a new report, Fitch Ratings says there is a clear ranking of the 'BBB' aerospace and defence (A&D) EMEA names based on six key variables, despite the sectoral congregation around the rating category.
Sector cluster is especially the case in Europe, where the benefits of access to the large US defence budget, which gives a rating uplift to a lot of US A&D issuers, is not so large. The resulting order of Fitch's analysis is: (i) European Aeronautic Defence and Space Company N.V. (EADS), (ii) BAE Systems plc (BAE), (iii) Thales SA, (iv) MTU Aero Engines AG (MTU), (v) Finmeccanica SpA.
It is no coincidence that five of the seven EMEA-based issuers rated by Fitch in the sector are in the 'BBB' category. Most issuers in the sector specifically target the 'BBB' category by aligning their financial strategies with credit metrics typical of the 'BBB' range, as it gives them the cushion of an investment-grade rating, which is so important in winning long-term contracts. At the same time, it also allows a certain amount of leverage which optimises the capital structure for shareholders.
Financial strategies designed to manoeuvre within the 'BBB' category do not imply that no differentiation exists between the credit profiles of 'BBB' rated issuers. Using these variables (which are not equally weighted; nor do they constitute the sole factors driving the ratings), Fitch ranks the five 'BBB' category rated issuers from strongest to weakest based on their relative position in each factor.
The ranking are designed to provide more granularity to its ratings than that afforded under the agency's 'Rating Aerospace and Defence Companies', dated August 2012 at www.fitchratings.com
Issuers covered in the report include European Aeronautic Space and Defence Company NV, BAE Systems plc, Thales SA, MTU Aero Engines AG and Finmeccanica SpA.
Link to Fitch Ratings' Report: European Aerospace and Defence: Not all â€˜BBBâ€™s are Alike