Fitch upgrades Howmet Aerospace ratings to ’BBB+’ with stable outlook

Investing.com -- Fitch Ratings has upgraded the ratings of Howmet Aerospace Inc. (Howmet), including its Long-Term Issuer Default Rating (IDR) and unsecured ratings, to ’BBB+’ from ’BBB’ on March 31, 2025. The rating agency has also improved Howmet’s Short-Term IDR and Commercial Paper ratings to ’F1’ from ’F2’, and the company’s preferred shares to ’BBB-’ from ’BB+’. The Rating Outlook for Howmet remains Stable.

The upgrades are a result of Howmet’s improved credit metrics following deleveraging actions, as well as its conservative capital allocation policy. The company’s strong free cash flow (FCF) generation and Fitch’s expectation of a robust demand environment in the intermediate term also contributed to the ratings upgrade. Howmet’s ratings are further supported by its leading market position and differentiated product portfolio, which is performance-linked and largely spec’d into original equipment manufacturer (OEM) platforms.

Howmet’s strong and defensible market position is supported by its highly engineered, performance-linked products and robust technology. The company holds a significant global market share for its commercial engine content, such as airfoils and seamless rolled rings, and has a significant share in the hot section of the engine, where competition is limited.

Howmet’s EBITDA leverage declined to 1.8x in 2024 from 2.6x in 2023, due to significant EBITDA growth and $365 million of debt reduction. Fitch forecasts that EBITDA leverage will remain in the 1.5x-2.0x range over the next few years, aligning with Howmet’s conservative financial policy of targeting 1.5x-2.0x net leverage.

Howmet’s cash flow from operations less capital expenditure over debt ratio was 27% in 2024, which is strong relative to similarly rated peers, and reflects the company’s cash generating-ability and deleveraging capacity. Fitch projects this ratio to remain above 25% through 2027.

Howmet maintains a comfortable liquidity position, which typically includes more than $500 million in cash and full availability on its $1.0 billion revolving credit facility. Fitch expects excess cash generation to be deployed for share repurchases and opportunistic bolt-on acquisitions.

Fitch assigns an ’F1’ Short-Term IDR to Howmet, the higher rating for a ’BBB+’ Long-Term IDR, due to the company’s financial structure and flexibility. This is supported by Howmet’s conservative financial policy, EBITDA leverage below 2.0x and EBITDA interest coverage above 13x during the forecast period, and Fitch’s expectation that Howmet would not require external funding to meet its debt obligations under a prolonged stress scenario.

Fitch projects that Airbus SE (OTC:EADSY) (A-/Positive) and The Boeing Company (NYSE:BA) (BBB-/Negative) will boost production rates over the next two to three years, supporting Howmet’s high-single-digit annual revenue growth. Howmet has significant content for both manufacturers and major engine OEMs, with about 70% of its aerospace sales under long-term agreements.

Howmet generates around half of its revenue from the commercial aerospace industry. Consequently, the company could be affected by a fundamental market shift, disruption to aircraft demand or build rates, or a prolonged cyclical aviation downturn.

Compared to Howmet, HEICO (NYSE:HEI) Corporation (HEICO; BBB/Stable), a manufacturer of aerospace and defense replacement parts; Hexcel (NYSE:HXL) Corporation (Hexcel; BBB-/Stable), a provider of lightweight composites; and MTU Aero Engines AG (OTC:MTUAY) (MTU; BBB/Stable), a supplier of engine components, Howmet is well-positioned.

The future ratings of Howmet could be affected by various factors. For instance, a deviation from stated financial policy leading to EBITDA leverage sustained above 2.5x or significant delays or disruption to global aerospace production could lead to a downgrade. On the other hand, a demonstrated commitment to a financial policy incorporating EBITDA leverage sustained below 2.0x could lead to an upgrade.

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