Fitch Ratings has maintained
Fitch has also affirmed
Hawaiian is facing refinancing risk for its loyalty notes due 2026 and liquidity pressures stemming from significant operational losses and heavy capital expenditures for its 787-9 aircraft deliveries in 2024.
Fitch believes the pending merger with
Key Rating Drivers
'CCC' Category Standalone IDR: Fitch anticipates that Hawaiian's EBITDAR Fixed Charge Coverage will be significantly negative for 2024 and remain weak at around 1x in 2025. EBITDAR leverage is projected to stay above 10x through 2025. The combination of weak coverage and high leverage heighten the airline's refinancing risks as a standalone entity. Fitch considers Hawaiian's financial profile in line with issuers rated in the 'CCC' category.
The pending merger with
Declining Liquidity: Fitch's base case projects that Hawaiian will continue to face financial challenges in 2024, with an expected cash burn of approximately
Despite these challenges, Fitch believes Hawaiian's current liquidity level is adequate to withstand the cash burn anticipated in 2024. However, if the airline continues to incur losses, its financial position is expected to diminish significantly towards 2025. As of
Revenue Challenges: Fitch has lowered its revenue growth expectation in 2024 due to sluggish demand from
After some recovery in 2023, the weakening of the Japanese Yen has slowed the number of Japanese tourists traveling to
Hawaiian was impacted by limited availability of its GTF engines in 2023. These issues have since alleviated, with engines returning from overhaul shops, which has allowed the full utilization of the A321neo fleet. However, the airline could still face aircraft groundings that would affect revenue generation, as spare engines are not readily available.
Low-single-digit EBITDAR Loss Expectation in 2024: Fitch anticipates that EBITDAR margin will remain negative in the low-single-digit range in 2024, due to previously mentioned revenue challenges, along with cost pressures from pilot salary increases, heavy maintenance events and airport fees. Additional cost burdens include productivity issues related to hiring and training for the Amazon cargo contract and for Hawaiian's 787s, which are not expected to deliver material benefits until 2025.
For 2025, Fitch expects Hawaiian to achieve moderate profitability with a mid-to-high-single digit EBITDAR margin. This improvement is expected to result from increased revenues from the introduction of additional capacity and premium seats with the 787-9 aircraft and the contract with Amazon. Nevertheless, uncertainties remain regarding revenue visibility for the Amazon contract, potential yield pressure from the 787s and slipping of A330F conversion and 787-9 deliveries. These factors could postpone the anticipated revenue contribution and the timeline for profitability.
Regulatory Uncertainty Around Alaska Merger: Fitch views the
Maturity Wall in 2026: The majority of Hawaiian's debt, including the
EETC Rating
HA 2013-1 Class A Certificates Affirmation: The class A certificates' LTV well exceed 100% under Fitch's 'A' and 'BBB' level stress, due to weakness in the A330 values. The 'BB-' rating reflects Fitch's bottom-up approach and includes three-notch uplift from Hawaiian's 'B-' IDR. The transaction benefits from two notches of uplift for a medium/high affirmation factor and one notch for the presence of a liquidity facility.
The medium/high affirmation factor reflects Fitch's expectation that Hawaiian will be reorganized in a bankruptcy scenario and that the A330s in the collateral pool is likely to be affirmed due to their relatively young age profile in the A330 fleet and a significant portion of Hawaiian's A330s is leased (50%). The low coupon rate of the EETC debt also contributes positively to the affirmation of the collateral.
However, should the prospect of Hawaiian's liquidation become more probable in a theoretical bankruptcy situation, Fitch would potentially lower the affirmation factor assessment to reflect the diminished likelihood of reorganization.
The affirmation factor is also negatively affected by
Derivation Summary
Fitch compares Hawaiian with
Fitch expects both airlines to have leverage above 10x by 2025 and weak EBITDAR fixed charge coverage. Both Spirit and Hawaiian face refinancing risks of their loyalty notes which become due
EETC:
The 'BB-' rating on the HA 2013-1 class A certificates is multiple notches below the ratings on many similar class A certificates issued by other airlines. The notching differential is driven by the concentration and depressed values of the A330-200s included in the collateral pool and Hawaiian's lower corporate credit rating than its industry peers.
Key Assumptions
ASM grows mid-single digits in 2024 and 2025, driven by the addition of 787s and the fully available A321neo fleet;
RASM increases low-single digits in 2024 and low-to-mid single digits in 2025 driven by improving neighbor island pricing environment, supportive domestic demand, and growing amount of premium capacity. RASM growth is limited by
CASM-ex increases low-to-mid single digits in 2024, impacted by cost inflation, heavy maintenance events, and investments for Amazon and 787s. Unit cost is expected to decline in 2025 as revenue contribution from 787s and Amazon cargo become more material;
Capex at
Fuel at 2.8/gallon flat throughout forecast.
EETC:
Key assumptions within the rating case for the issuer include a harsh downside scenario in which Hawaiian declares bankruptcy, chooses to reject the collateral aircraft, and where the aircraft are remarketed in the midst of a severe slump in aircraft values. Hawaiian's bankruptcy is hypothetical, and is not Fitch's current expectation;
Fitch's analysis incorporates a 8% annual depreciation rate for Tier 3 aircraft.
Fitch's recovery analyses utilize Fitch's 'BB' level stress tests and include a full draw on liquidity facilities and assumptions for repossessions and remarketing costs.
Aircraft Value Stresses
A330-200: A level stress at 45%, BBB level stress at 40%, and BB level stress at 35%.
Recovery Analysis
Fitch's recovery analysis assumes that Hawaiian would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim and assumes a bankruptcy scenario is driven by a combination of structural competition in
Fitch's estimate for the value available to the loyalty program and brand IP-backed creditors is based on an internally generated discounted cash flow analysis and assumes conservative future cash flows reflecting a materially shrinking customer base and a slow recovery post-bankruptcy. This analysis results in secured creditors receiving strong recovery in the 'RR2' band.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Expectations for EBITDA leverage to fall below 5x;
Success in operating 787-9s;
EBITDAR Fixed Charge Coverage moving toward 2x.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The announced merger is not approved by regulators or becomes less likely for other reasons;
Total liquidity falling below
EBITDAR Fixed Charge Coverage sustained at or below 1x.
EETC:
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Positive rating actions are unlikely at this time due to depressed values for the A330-200s
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Due to the sharp decline in appraised values for the A330s, the rating for the class A certificates are achieved via a bottom-up approach that acts as a rating floor. Should Fitch downgrade Hawaiian's IDR or change in assessment factor, the notes will be downgraded accordingly
Liquidity and Debt Structure
Declining Liquidity: As of
Debt Maturities: Hawaiian's debt structure primarily consists of secured borrowings and aircraft-backed debt. The company's revolver matures in
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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