KBRA Affirms Ratings for Dubai Aerospace Enterprise; Revises Outlook to Positive

KBRA affirms the issuer and senior unsecured debt ratings of BBB+ for Dubai Aerospace Enterprise (DAE) Ltd. (“DAE” or “the company”). The Outlook is revised to Positive from Stable.

Key Credit Considerations

The revision of the Outlook to Positive reflects DAE’s improved earnings metrics following resilient performance during the COVID pandemic with continued earnings improvement expected from industry tailwinds and maturities of pandemic-era leases, combined with improved visibility of DAE’s future fleet growth with aircraft orders and commitments. The Positive Outlook also reflects expected continued improvement in DAE’s top lessee diversification with fleet growth over time and its demonstrated ability to maintain fleet quality metrics through multiple channels, including trading and M&A, despite having a smaller orderbook compared to larger peers. In January 2025, DAE announced that it had agreed to acquire Nordic Aviation Capital (NAC) which is expected to close in the first half of 2025. On a pro forma basis, DAE’s fleet will be comprised of approximately 750 owned, managed, and committed aircraft with a total value of approximately $22 billion on lease to approximately 170 airline customers in approximately 70 countries.

In addition, the Outlook revision reflects continued demonstration of material franchise and funding benefits from DAE’s long-term strategic ownership by Investment Corporation of Dubai (ICD), the principal investment arm of the Government of Dubai, which has significant financial resources, funding relationships, and demonstrated commitment to aviation sector investments. This has included additional capital contributions to DAE to support growth opportunities and maintain strong capital metrics.

The ratings reflect DAE’s strong market position globally, established franchise and track record, experienced management team, quality fleet with a good proportion of next generation fuel-efficient aircraft representing 53% of net book value at December 31, 2024 (FY24), and near-term growth prospects supported by 67 aircraft commitments (including orders for 56 Boeing 737 Max aircraft) as well as the announced NAC acquisition. The ratings are also supported by contracted revenue through long-term leases, strong capital and liquidity metrics maintained through recent industry disruptions, and diversified funding sources including a strong proportion of unsecured debt with significant unencumbered assets.

As of YE24, leverage remained moderate at 2.6x debt-to-equity (2.4x net debt-to-equity) and liquidity remained strong with unrestricted cash of $582 million and $3.2 billion of undrawn committed borrowing capacity which covers near term needs and supports future growth. Since 2021, the company’s underlying earnings profile, excluding the impact of Russia write-downs, has strengthened along with the strong rebound in air traffic globally with improved cash collections, lower non-accruals and increased lease rates.

The ratings also consider the improved overall health of the company’s lessees with limited exposure to lessees facing bankruptcy and restructuring. These exposures are expected to be manageable considering DAE’s proven track record in managing restructurings and transitioning aircraft and the strong demand environment for aircraft globally. Overall, KBRA views DAE as well-positioned to manage future market disruptions given its management expertise, laddered debt maturities, strong capital base, solid liquidity and continued robust access to funding.

These strengths are balanced by top customer concentration (albeit declining) that are above highly-rated peers’, less certain long-term growth prospects with a smaller orderbook compared to larger peers and a historical focus on sale-leasebacks and secondary market acquisitions which, KBRA notes, has allowed the company to maintain solid fleet metrics historically. The ratings also consider, more generally, DAE’s and other aircraft lessors’ reliance on wholesale funding, the cyclical nature of the industry, and exposure to event risks and industry-specific disruptions.

The alignment of the senior unsecured debt rating with the issuer rating reflects adequate unencumbered assets coverage of unsecured debt of 1.4x at YE24, which supports unsecured debt recovery prospects.

Rating Sensitivities

Factors that could positively impact the rating over time include increased market share along with a demonstrated ability to grow organically, sustained improvement in earnings metrics, continued improved customer and aircraft type diversity through fleet growth, and broader access to long-term funding sources while sustaining leverage at or below the low-end of DAE’s target range (2.5x-3.0x debt-to-equity) and maintaining a strong liquidity profile.

A rating downgrade is unlikely in the near term. Negative rating action could occur if global passenger air traffic deteriorates and leads to increases in delinquencies, defaults and/or impairments, or a decline in funding availability with significant negative impacts on DAE’s profitability, capital and/or liquidity metrics. A significant increase in asset encumbrance with an increase in secured debt as a percentage of total debt that reduces funding flexibility could also lead to negative rating action. A significant change in ownership with reduced benefits from ICD ownership could result in a rating downgrade.

To access ratings and relevant documents, click here.

Methodologies