Moody’s Investors Service considers Allegiant Air’s order for 12 new Airbus A320s a credit negative, but maintains its Ba3 rating and stable outlook for the carrier.
The rating agency expects “free cash flow to turn negative and return on capital for these aircraft to be lower than if the company added 12 more 12-year old A320s to the fleet instead”, it said in a comment on 2 August.
Moody’s estimates the cost of the 12 aircraft to be around $360 million to $400 million, basing this on a current market value for an A320 of roughly $43 million and assuming a discount of around 25%. The bulk of these expenses will occur in 2017 when 10 aircraft are due to arrive.
By comparison, Allegiant spent $253 million in capital expenditures on 13 used A320 family aircraft in 2015.
The Las Vegas-based carrier will add 10 new A320s and 11 used A320 family aircraft in 2017, and two new A320s and 25 used A320 family aircraft in 2018, a July fleet plan shows.
There is an upside to acquiring new aircraft. The new A320s will have lower maintenance costs, better fuel efficiency and about double the operating life of used aircraft, says Moody’s.
In addition, Las Vegas-based Allegiant is expected to utilise the new aircraft more than the average 8.3 block hours per day of its existing Airbus fleet, the rating agency says.
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