S&P cuts TAP rating due to coronavirus

Standard and Poor’s cut the ratings of TAP and five other airlines. The downgrade, announced this Wednesday, places the Portuguese company’s rating at B-, one level below the previous rating of B.

“Our downgrading of TAP Air Portugal, the Portuguese airline, reflects the company’s weak cash flow generation and deteriorating liquidity,” S&P explains in a report released Wednesday. “We project a material shortage of liquidity over the next 12 months.”

The agency’s projections show that the company would have 250 to 300 million euros in cash on March 31 to meet its financial needs. The amount compares with 60 million in debt amortizations and leasing, to which add 300 to 350 million in rents.

The financial pressure is exacerbated by the sharp reduction in revenue as the overwhelming majority of flights are suspended. Although 90% of employees are in lay-off, the S&P considers that this will not be enough. “We see these measures as insufficient to compensate for the significant drop in revenues and we anticipate a negative financial flow this year,” it says.

The government is working with TAP management on a capitalisation operation for the company that is 50% state-owned, 45% owned by Atlantic Gateway and 5% in the hands of workers.

“We see a moderately high probability that TAP Air Portugal will receive support from the Portuguese government,” says Standard and Poor’s, which leaves a warning: either the aid arrives in the next three months or it could cut the rating again.

“We have kept TAP Air Portugal’s rating under surveillance with negative implications to indicate that we may lower the rating further in the next 90 days. If it seems to us that TAP will not receive sufficient or timely public support, or possibly look for alternative ways to improve liquidity (which we would consider worrying), a multi-tiered downgrade is possible,” the agency warns.