Executive Summary
This document describes KBRA’s rating methodology as it pertains to airlines. The airline industry is characterized by highly variable financial results, low margins, generally weak credit profiles, and frequent bankruptcies. These attributes are the result of revenue sensitivity, intense competition, high fixed costs and operating leverage, inability to control a volatile commodity input, and elevated financial leverage needed to fund costly assets, among other factors.
The Rating Determinants described below include both business and financial risk indicators: the former generally capture qualitative aspects and are based on KBRA’s view of the airline and the airline industry, while the latter include select quantitative metrics, along with an analysis of their trends. These Rating Determinants also incorporate forward-looking analyses.
It is important to note that KBRA applies judgment in the application of all of its methodologies. This may result in situations…