Fitch Assigns Foreign & Local Currency IDRs of 'BB' to TAM S.A.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch has assigned foreign currency and local currency Issuer Default Ratings (IDRs) of 'BB' to TAM S.A (TAM). Fitch has also assigned a national scale rating of 'A+' (bra)' to TAM. The Rating Outlook is Stable. The ratings reflect the company's market leading position in the Brazilian air passenger transportation sector, adequate leverage indicators and positive free cash flow generation. The ratings also reflect the company's exposure to fluctuations in jet fuel prices and exchange rates, the strong correlation of its activities with the performance of the domestic economy, high operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. and competitive threats. The ratings incorporate TAM's fleet expansion plans and the company's intention to maintain conservative leverage ratios. The Brazilian passenger air transportation market has undergone significant changes over the past several years, underpinned by the recovery of demand for air travel services, the financial difficulties of Varig S.A. (Varig) and the collapse of Viacao Aerea Sao Paulo (VASP VASP Vasodilator-Stimulated Phosphoprotein VASP Vienna Ab-Initio Simulation Package VASP Viação Aérea São Paulo SA (Brazilian airline) VASP Value Added Service Provider VASP Virginia Academy of School Psychologists ). Taking advantage of the inefficiencies of these operators, TAM has captured market-share and consolidated its leading position without surrendering profitability and discipline in its capital structure. The company has also changed strategic focus from a traditional 'premium service' to a lower-cost operator, while maintaining service quality and fare differentiation against its main competitor in the domestic market. As part of these changes, TAM reformulated its fleet to incorporate newer more efficient aircraft, concentrated efforts on operating cost-reduction and improved yield management. Over the next several years, TAM will face new challenges, as it will need to maintain market leadership in a strongly competitive environment with a main competitor that has a lower cost structure and has announced an aggressive fleet expansion program. Over the past several years, revenues have grown strongly, profit margins have improved and the company has maintained positive cash generation. Revenue growth has been supported by the exit from the market of other operators, market share loss by Varig and the recovery of the Brazilian passenger air travel market. During 2005, the number of passengers transported by TAM increased by 45% and the company's load factor reached 70.6%, well above the break-even load factor of 65%. TAM has been able to enhance its cost structure by raising the capacity utilization rate Capacity utilization rate The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion. , operating new aircraft with lower maintenance costs and fuel consumption and reducing commercial expenses. The RASK (revenue per available seat kilometer) - CASK (cost per available seat kilometer) spread improved to BRL BRL In currencies, this is the abbreviation for the Brazilian Real. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 1.6 in 2005 from BRL 0.80 cents in 2003. Excluding the effects of fuel costs, the CASK fell by 16% in 2005 from 2004. In 2005, cash generation measured by EBITDAR Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring Costs - EBITDAR An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization, and restructuring costs) reached BRL 1.1 billion, up from BRL 702.2 million in 2003. The company has a moderate capital structure compared to the industry average. At Dec. 31, 2005, total on-balance sheet debt reached BRL 641.3 million, primarily related to long term equipment leases and working capital. Total adjusted debt including operating leases reached BRL 5.7 billion as the entire aircraft fleet is leased. For the year ended Dec. 31, 2005 the ratio of total adjusted debt to EBITDAR ratio was 5.1 times (x) and the ratio of EBITDAR to interest and lease expenses was 1.9x, levels that are consistent with the rating category. TAM's expansion plan contemplates the incorporation of 31 new aircraft between 2006 and 2010, all of which will be leased. The company's strategy to lease all its aircraft allows it to limit cash disbursements, maintain financial flexibility and adjust rapidly to changes in passenger demand. TAM has a contract outstanding with Airbus for the delivery of 29 A319/320 aircraft by 2010 with an option to another 20. In addition, it also has a preliminary agreement for the delivery of 37 additional A319/320/330 aircraft by 2010. The company currently operates a fleet of 86 aircraft with an average life of 7.5 years, comprised of 22 Fokker 100, 54 A319/320 and 10 A330. Over the next several years, total adjusted debt is expected to grow as TAM incorporates new capacity under long-term lease contracts. On balance-sheet debt should increase by the end of 2006 in connection with the issuance of debentures in the domestic market for BRL 500 million and an IFC (Internet Foundation Classes) A class library from Netscape that provides an application framework and graphical user interface (GUI) routines for Java programmers. IFC was later made part of the Java Foundation Classes (JFC). See JFC, AFC and AWT. See also ICF. loan for BRL32 million that is expected to close by the end of the year. Proceeds from these transactions will be used to finance aircraft maintenance. Total adjusted debt to EBITDAR should range between 3.5x and 4.5x over the next few years as higher debt is off-set by expected increases in EBITDAR. TAM seeks to maintain a cash position of approximately three times monthly revenue (equivalent to approximately BRL 1.4 billion) to cover itself against short term refinancing risk In banking and finance, refinancing risk is the possibility that a borrower cannot refinance by borrowing to repay existing debt. Many types of commercial lending incorporate bullet payments at the point of final maturity; often, the intention or assumption is that the borrower and sector volatility. At March 31, 2006 the company had a balance of cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has of BRL 1.2 billion, of which BRL 593.5 million was related to the proceeds of the Initial Public Offering (IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ) of TAM's shares in the domestic market during July 2005 and March 2006, which the company plans to keep in cash. TAM is a holding company that operates through its subsidiaries TAM Linhas Aereas and TAM Mercosur TAM Mercosur also know as Transportes Aéreos del Mercosur S.A. formerly known as LAP (Líneas Aéreas Paraguayas) (IATA: PZ, ICAO: LAP, and Callsign: Paraguaya), is an airline based in Paraguay. . The company offers regular air passenger transportation services in Brazil and abroad. It covers the entire territory of Brazil, serving 47 national destinations directly and an additional 26 destinations through regional alliances with other airline companies. TAM also serves 11 international destinations and offers connections to several cities outside Brazil through agreements with American Airlines American Airlines Major U.S. airline. American was created through a merger of several smaller U.S. airlines and incorporated in 1934. It continued to buy the routes of other airlines, becoming an international carrier in the 1970s; its routes include South America, the and Air France Air France in full Compagnie Internationale Air France French passenger and cargo airline with more than 200 destinations in some 80 countries. It introduced supersonic Concorde service in 1976, but financial loss led the company to cease its Concorde . Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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