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Investing.com -- Fitch Ratings has upgraded Leonardo S.p.A.’s Long-Term Issuer Default Rating to ’BBB’ from ’BBB-’ with a Stable Outlook, citing expectations of improved EBITDA margins and free cash flow generation through 2028.
The rating agency expects Leonardo’s planned €1.7 billion acquisition of Iveco Defence, a division of Iveco Group N.V., to have only a moderate impact on the group’s financial profile. The transaction, expected to complete in the first quarter of 2026 subject to regulatory approvals, will be funded using available cash resources.
Leonardo has also signed a term sheet with Rheinmetall (ETR:RHMG) that could result in divesting Iveco Defence’s trucks business, potentially reducing the expected cash outflow in 2026.
Fitch forecasts Leonardo’s EBITDA leverage will improve to 1.6x by the end of 2025, down from 2.1x at the end of 2024. While the Iveco acquisition will slightly raise EBITDA net leverage to 1.1x by end-2026 from an expected 0.8x at end-2025, this remains lower than the 1.3x recorded at end-2024.
The rating agency expects Leonardo’s EBITDA margin to reach about 11% in 2025-2026 and 12% in 2027-2028, up from approximately 10% in 2023-2024. This improvement will be driven by better performance in defence electronics and reduced losses in aerostructures, supported by efficiency initiatives and cost-saving measures.
Free cash flow margins are projected to remain solid at 3%-4% over 2025-2028, as earnings growth offsets annual capital expenditure of about €1 billion and higher dividend distributions.
Leonardo’s total order backlog increased 11.8% in 2024 and grew a further 3.9% year-on-year in the first half of 2025, reaching €45 billion, equivalent to about 2.4 years of production. At the end of the first half of 2025, 42% of the order book was attributable to defence electronics and security, 34% to helicopters, and 21% to aeronautics.
The company operates as a leading aerospace and defense company with revenues in the first half of 2025 split across helicopters (31%), defence electronics & security (43%), aeronautics (22%), and other segments (4%). It benefits from significant geographic diversification, with the US accounting for 26% of 2024 revenue, Italy 18%, the UK 12%, the rest of Europe 18%, and the rest of the world 26%.
Fitch does not expect tariff increases to materially impact Leonardo’s performance as most of its military programs are exempt from tariffs.
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