DoD tests AI models that make it easy to switch from vendors like Palantir
Investing.com -- International Consolidated Airlines Group (LON:ICAG) S.A. (IAG) has seen its long-term issuer credit rating upgraded to ’BBB’ from ’BBB-’ by S&P Global Ratings, following stronger cash flows and reduced leverage. The rating agency also raised the issue rating on the group’s senior unsecured debt. S&P’s stable outlook for IAG is based on the expectation that the company will maintain a weighted-average adjusted funds from operations (FFO) to debt ratio of well above 45% over the next two years.
In 2024, IAG’s adjusted EBITDA exceeded S&P’s previous forecast by about €1 billion, reaching €6.7 billion. This was facilitated by delayed capital expenditures (capex) and the use of excess cash for debt repayments, enhancing the group’s financial flexibility. It is anticipated that IAG will continue its record-high earnings in 2025, generating clearly positive free operating cash flow (FOCF) despite higher capex.
The strong performance in 2024 was driven by robust air passenger demand, lower oil prices, and effective cost management. IAG increased its adjusted EBITDA from €5.6 billion in 2023 to €6.7 billion in 2024, a new high. This growth was supported by strong demand for air travel and capacity bottlenecks in the airline sector. Lower-than-expected brent crude oil prices and effective cost management offset nonfuel cost inflation and led to an increase in EBIT margins. S&P forecasts that IAG’s adjusted EBITDA will likely reach a new record high of up to €7.0 billion in 2025.
IAG is expected to generate positive FOCF for the fourth consecutive year in 2025, reducing its adjusted debt further. The company’s operating cash flows are predicted to cover the year’s planned increase in capex to about €3.7 billion. This follows a record-high FFOCF of €3.7 billion in 2024 and €1.5 billion in 2023. IAG’s adjusted debt in 2025 is expected to decline below the €7.7 billion as of Dec. 31, 2024. This will support an adjusted FFO to debt ratio of well above the 45% threshold for the ’BBB’ rating.
The ’BBB’ rating on IAG is limited by the volatile nature of the industry and the group’s limited history of operating with the lower financial leverage forecasted in S&P’s base case. The stable outlook reflects S&P’s expectation that IAG will maintain a weighted-average adjusted FFO to debt of well above 45% over the next two years, supported by robust air passenger demand, the group’s prudent shareholder remuneration policy, and commitment to deleveraging.
The rating agency noted that an upgrade would depend on IAG’s established track record of operating at the level of the improved leverage and cash flow measures through the cycle, and IAG’s continuous commitment to further deleveraging. On the other hand, S&P could lower the rating if earnings fell short of expectations and led to adjusted FFO to debt deteriorating and staying consistently below 45%.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.