• February 13, 2020
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Moody's: Despite some turbulence, APAC airports can weather coronavirus challenges

Moody's Investors Service said in a new report that the coronavirus outbreak is impacting airport revenue amid international travel restrictions and route suspensions, a credit negative, with airports in Asia Pacific most affected.

“While travel to and from mainland China still accounts for less than 4% of total Asia Pacific passengers, the financial impact on airports is larger than suggested by passenger numbers, as they typically generate substantively higher revenue from international passengers than from domestic ones,” said Nicholas Chapman, Moody's vice president and senior analyst.

While it is too soon to determine the ultimate impact of the coronavirus on domestic and non-mainland China-related travel, past experience, including from the 2003 SARS outbreak, suggests that travel between Asian destinations could be significantly affected over at least the next two to three quarters.

“Nevertheless, most rated airports in Asia Pacific generate solid free cash flow and are able to defer investment programs, providing them with a buffer against a short-term decline in aviation demand,” added Chapman.

Among Moody's rated portfolio in Asia Pacific, Melbourne Airport – Australia Pacific Airports

(Melbourne) Pty Ltd, A3 stable – is more vulnerable to the disruptions resulting from the outbreak, due to its higher exposure to mainland China in combination with its large investment pipeline.

These risks are balanced by the airport's track record of maintaining its credit profile as well as its strong liquidity position.

The Indian airports are currently undertaking substantial expansion programs, reducing their capacity to withstand a more widespread outbreak, particularly as the airports rely on debt and almost all of their cash flow from operations to fund this spending.

The rated Malaysian airport (Malaysia Airports Holdings Berhad, A3 stable) also has a relatively high exposure to China, but has no major investment planned in the first half of 2020 and retains some buffer in its leverage metrics to manage a temporary downturn.

The report “Airport Services – Asia Pacific: Coronavirus outbreak reducing traffic at Asia Pacific airports, a credit negative” forms part of a series of research on the credit implications of the coronavirus outbreak on various sectors globally, as Moody's continues to monitor the rapidly changing situation.

Re-disseminated by The Asian Banker