Moody’s worried about SA air traffic recovery, keeps ACSA’s outlook on ‘negative’

For Moody’s any improvement in ACSA’s financial profile will also be dependent on the level of tariffs it can charge in future.

• Ratings agency Moody’s has decided to maintain its negative outlook for state-owned Airports Company South Africa.
• Although domestic air traffic reached 68% of pre-pandemic levels in February 2022, the international segment is still lagging at 45%.
• For Moody’s any improvement in ACSA’s financial profile will also be dependent on the level of tariffs it can charge in future.

Ratings agency Moody’s has maintained its negative outlook for Airports Company South Africa (ACSA).

This is due to ACSA’s debt burden, as well as uncertainties about prospects for a recovery in air traffic after the pandemic’s devastating impact.

In 2021, traffic at ACSA’s airports was still about 58% below pre-pandemic levels in 2019. Although domestic traffic reached 68% of pre-pandemic levels in February 2022, the international segment is still lagging at 45%.

Government owns almost 75% of ACSA, which operates nine airports in South Africa, including O.R. Tambo International Airport in Johannesburg, Cape Town International Airport, and King Shaka International Airport in Durban.

During the year to end-December, ACSA suffered a loss before tax amounting to R924 million compared to a loss of R2.5 billion in the previous financial year.

Despite the challenging operating environment, Moody’s expects ACSA’s financial profile to improve as traffic continues to recover from the impact of the pandemic. ACSA management’s attempts to cut operating costs and the likelihood of more government support are other factors to be considered in future ratings.

But ACSA’s high financial leverage and reliance on government support concern Moody’s.

For Moody’s, ACSA’s financial profile depend also on what tariffs it will be able to charge in future. ACSA’s current regulatory period will end on 31 March 2023 and Moody’s found “no visibility around the level of tariffs beyond this”.

READ | ‘A debt-ridden carcass’: ACSA shareholders in two-decade fight to sell their shares

Moody’s affirmed a Ba2 Corporate Family Rating (CFR) and Aa2.za national scale long-term issuer rating of ACSA.

Last week, Moody’s upgraded its outlook of the SA government to “stable” from “negative”. On Wednesday, it also upgraded its outlook of South African banks and insurers – but kept Eskom’s outlook on negative.