Rating Agency Expert RA Confirms the Credit Rating of Non-Financial Company Aeroexpress at ruBB+ and Changes the Rating Outlook to Stable

The change in outlook is due to overcoming a period of increased liquidity risk thanks to government support amidst significant deterioration in Aeroexpress's financial condition observed throughout 2020. The Moscow government allocated a grant to cover leasing obligations, which significantly improved liquidity indicators and largely mitigated the risks of debt non-payment in 2021. The agency also notes a change in the debt repayment schedule, under which part of the short-term obligations was extended to more distant periods.

The year 2020 was marked by negative market conditions caused by the coronavirus pandemic. With restricted international air travel, the company’s passenger flow also came under pressure. In 2020, the number of passengers transported decreased by 58%. Against this backdrop, the company’s financial results showed a significant decline, which contributed to a moderately negative assessment of the company’s resilience to external shocks. Operations within the Moscow Central Diameter (MCD) helped mitigate the impact of the decline in passenger flow. The company also managed to utilize a grant from the Moscow government for leasing payments—one of the key components of the company’s cost structure. In 2021, there was a recovery in transport volumes; however, the number of passengers transported still did not reach pre-crisis levels. For the first half of 2021, the number of passengers transported through Moscow’s airports was approximately 143% of the level for the same period in 2020, and for domestic transport, it was about 194% compared to the same period last year.

The agency positively evaluates the company’s market and competitive positions due to the absence of significant competitors in the segment of rail passenger transport to Moscow airports in the long term and the presence of modern rolling stock. The degree of wear on the existing Stadler trains is estimated at 19%. The company’s contract base includes an agreement for suburban rail services on routes linking Moscow with the Moscow airports until 2030. The company also has a three-year contract for servicing a section of the MCD, generating up to 1.2 billion rubles annually until 2022, which is assessed by the agency as a good source of revenue in negative market conditions. Additionally, income from subleasing contributes to a moderately positive evaluation of the company's product diversification, despite the low variability of the services provided. Market positions are considered moderate—by the end of April 2021, the company’s market share was 13%, which, although higher than pre-crisis levels of 2019, is still lower than that of taxis, which account for the majority of passenger transport to airports—about 40%. The agency also positively assesses the company’s market: Aeroexpress operates in Moscow and the Moscow region, areas with high income levels and a more concentrated airport system with higher traffic compared to other regions of Russia. The agency evaluates the business concentration risk as minimal despite the high share of revenue from operating the MCD route in the company’s revenue structure by the end of 2020. According to the agency, this share will organically decrease as the industry recovers from the crisis and higher volumes of revenue from normal activities are formed. The replaceability of Aeroexpress in the MCD subleasing contracts is also considered low.

The company’s financial risk block negatively impacts the company’s credit rating. As a result of the decline in passenger turnover in 2020, from Q1 2020 to Q1 2021 (hereinafter referred to as Q1 2021 LTM, reporting period), revenue decreased by almost 50% compared to the previous year’s comparable period. At the same time, the EBITDA indicator fell more sharply due to the high proportion of fixed costs in the expense structure—by 81%, which significantly reduced EBITDA profitability from 48% to 18% year-on-year. The dramatic decline in profitability led to a negative re-evaluation of all qualitative financial indicators according to the agency’s methodology. The debt-to-EBITDA ratio, including capitalized lease payments, increased from 5.0x to 27.7x. The overall interest burden level was 0.4x, which the agency negatively assesses. Despite the significant deterioration in the company’s financial results, supportive factors for the rating level included support from the Moscow government, concessions from the sole creditor and lessor—Bank GPB (JSC)—and partial compensation for lost income through cash flows from the MCD service contract, which provided about a third of the revenue in 2020. Receiving the grant for lease payments and deferring about 0.4 billion rubles in lease payments to 2024-2025 resulted in a positive liquidity assessment for the company. The agency notes a comfortable lease repayment schedule, evenly distributed up to 2037, with situational peaks in repayments during the reporting period, caused by low FFO levels amid crisis conditions, expected to correct as the industry recovers. In the next two years from the reporting date, the agency expects financial results to recover to pre-crisis levels. By the end of Q1 2022 LTM, the agency expects revenue to reach 2019 levels due to additional income from subleasing cars (+1.2 billion rubles) and gradual recovery of passenger flow to at least 70% of 2019 levels, matching the actual results for the first half of 2021. The agency does not see any signs of repeating the negative dynamics of 2020 in the next two years due to the moderate recovery of air travel and passenger flow amid increasing vaccination rates and gradual lifting of restrictions. With these assumptions, the agency expects the debt-to-EBITDA ratio to decrease to 5.8x over the next two years from the reporting period. However, EBITDA profitability in Q1 2022 LTM and Q1 2023 LTM is expected to remain below pre-crisis levels at 36-42% due to increased capital repair costs of rolling stock.

The company’s corporate governance is rated as moderately positive. The company has a board of directors, but it lacks independent directors. The degree of transparency is limited by the absence of publicly available financial information for the period 2017-2018 and the lack of audited IFRS financial statements publicly available.

As of March 31, 2021, LLC Aeroexpress's assets, according to RAS reporting, were 37.0 billion rubles, equity was 5.1 billion rubles, revenue for the first quarter of 2021 was 0.9 billion rubles, and net profit was 316 million rubles.