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Investing.com -- Moody’s Ratings has affirmed the Baa3 senior unsecured ratings and long-term issuer rating of International Consolidated Airlines Group (LON:ICAG), S.A. (IAG) and upgraded the outlook from stable to positive today.
The change in outlook demonstrates Moody’s confidence in IAG’s ability to maintain key credit metrics at a level in line with a higher rating over the next 12 to 18 months. This is despite the potential risks to demand due to fluctuations in the macroeconomic environment, according to Frederic Duranson, a Vice President - Senior Analyst at Moody’s and lead analyst for IAG. Duranson also cited IAG’s conservative financial strategies, focus on debt reduction, and excellent liquidity as factors bolstering the credit view.
Over the past year, IAG has demonstrated strong performance and maintained a conservative financial policy. As of March 2025, its Moody’s adjusted gross debt/EBITDA was 2.2x, and the operating profit margin stood at 13%, supported by a Moody’s-adjusted operating profit of €4.2 billion for the twelve months ending in March 2025. This marks an improvement from the adjusted leverage of 2.6x in March 2024, aided by over €1 billion debt repayments in the first quarter of 2025.
Despite the volatile macro environment posing risks to demand, lower fuel costs year-on-year are expected to support operating profit. However, IAG anticipates a 4% increase in non-fuel unit costs in 2025. Consequently, Moody’s prudently forecasts an operating profit of around €4 billion this year, with an adjusted leverage of 2.3x.
The Baa3 ratings are supported by IAG’s robust business profile, which includes its large scale, well-known brands, diversified global network, strong market positions on many routes, and improved cost flexibility. The company’s financial policy prioritizes debt reduction and maintains excellent liquidity. Moody’s projects that available liquidity will account for over 30% of annual revenue in the next 12 to 18 months.
However, the company faces credit challenges such as potential operational disruptions across the aviation ecosystem, the possibility of not being able to pass on cost increases to customers, a higher reliance on leisure travel than before the pandemic, and significant fleet and IT capital expenditure needs that could impact free cash flow generation.
IAG’s liquidity stood at €12.4 billion as of March 31, 2025, which includes €9.4 billion in cash and €3.0 billion in undrawn general facilities. The general facilities primarily consist of a $3.0 billion revolving credit facility available until June 2029.
The positive outlook is based on expectations that IAG’s credit ratios and financial policies will align with a higher rating in the next 12 to 18 months, despite potential downside risks to demand.
The outlook could revert to stable if Moody’s anticipates a weakening in demand, rising costs, or a sudden shift to a more aggressive financial policy, which could collectively lead to a significant deterioration in key credit ratios from their March 2025 level.
Possible factors that could lead to an upgrade or downgrade of the ratings include changes in the group’s gross debt/EBITDA, free cash flow generation, operating margins, liquidity, and structural subordination.
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