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Investing.com -- Fitch Ratings has upgraded the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of LATAM Airlines (NYSE:LTM) Group S.A. (LATAM) to ’BB’ from ’BB-’, on April 3, 2025. The upgrade also includes the Long-Term National Scale Rating, which has been raised to ’A(cl)’ from ’BBB+(cl)’, and unsecured and subordinated local issuances that have been upgraded to ’A-(cl)’ from ’BBB(cl)’. The Equity Rating of LATAM has been lifted to ’Primera Class Nivel 2(cl)’ from ’Primera Class Nivel 3(cl)’. Fitch maintains a Positive Rating Outlook for the airline.
The upgrade reflects LATAM’s improving credit metrics, which are driven by growing profitability, operating cash flow generation, and debt repayment. The strong credit metrics of LATAM for FY25, including total and net leverage of 2.2x and 1.5x respectively, support the rating upgrade. The company has recently experienced a recovery in passenger traffic and yields, and has benefited from mild fuel prices.
Fitch expects LATAM’s operating cash flow to continue to improve in 2025, driven by solid traffic levels, cost efficiencies, and capacity expansion. The agency forecasts LATAM’s adjusted EBITDAR to reach around $3.5 billion in 2025 and $3.6 billion in 2026. Fitch also expects LATAM’s free cash flow generation to be positive in 2025 and 2026, around $410 million after increasing capital expenditures.
LATAM’s leverage is expected to continue to decline in 2025, despite higher capital expenditures and dividends. As of December 31, 2024, LATAM’s total debt was $7.1 billion, expected to rise to $7.5 billion in 2025, but still significantly lower than the $10.4 billion debt as of 2019.
LATAM’s financial flexibility is enhanced by revolving credit facilities of $1.575 billion that are fully undrawn, as well as a pool of unencumbered asset base of $1.5 billion, including aircraft and additional engines. Fitch expects LATAM to maintain solid cash balances, with cash plus RCF to LTM revenues on average above 25%, as it seeks to reduce exposure to short-term refinancing risks and industry volatility.
Fitch rates LATAM’s shares at ’Primera Clase Nivel 2(cl)’ based on its solvency and free float of 55%, according to its ownership structure. In terms of liquidity, it has 100% market presence and an average daily volume traded in the last month of $17 million, based on information as of March 2025.
LATAM’s ’BB’ ratings reflect its diversified business model, in terms of product and geographic footprint, significant regional market position, strong capital structure, robust liquidity, and financial flexibility. These positive factors are tempered by the industry’s high business risks and exposure to exogenous shocks.
Fitch’s base case during 2025 and 2026 includes an increase in ASK by 8% and 5%, respectively; Load factors around 82%-83% during 2025-2026; Jet fuel at $2.65 in 2025 and $2.75 in 2026; Capex of $1.65 billion in 2025 and 2026.
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