Fitch Ratings has upgraded Turkish Airlines’ (THY) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) from ‘BB-‘ to ‘BB’ and affirmed its outlook as stable. Additionally, it confirmed the Bosphorus Pass-Through Certificates Series 2015-1A Class A ratings at ‘BB+’. Fitch also raised THY’s Standalone Credit Profile (SCP) from ‘bb-‘ to ‘bb’.

Reasons for the Credit Rating Upgrade

Fitch expects THY’s credit metrics to stabilize at more favorable levels than previously anticipated. The airline’s EBITDAR leverage is projected to remain in the 3.0x-3.5x range between 2024 and 2027.

Additionally, THY’s:

• Strong market position,
• Approximately 20% EBITDAR margin,
• Position among the top five carriers in Europe and the Middle East,
• Effective management of foreign exchange risk

are key factors supporting its credit profile.

Fitch highlights that THY’s debt burden has eased and that its foreign exchange earnings, primarily in U.S. dollars and euros, help mitigate currency risk.

Performance and Growth Outlook

Following its strong post-pandemic recovery, Fitch expects THY to achieve high single-digit revenue growth between 2024 and 2027, driven mainly by capacity expansion. However, cost increases related to personnel, airport operations, and supply chain issues may put pressure on profit margins.

The agency forecasts that THY will generate approximately $4.7 billion in EBITDAR in 2024, rising to around $5 billion by 2027.

Fleet and Passenger Growth Targets

As part of its strategic plan through 2033, THY aims to:

• Reach a fleet of 492 aircraft by the end of 2024,
• Expand its fleet to 600 aircraft by the end of 2026.

THY plans to operate more than 800 aircraft and carry over 170 million passengers. Additionally, its low-cost subsidiary, AJet, is expected to enhance its business profile. However, these investments may lead to a slight increase in debt over the medium term.

Financial Status and Debt Management

As of the end of September 2024, THY had:

• $5.9 billion in liquidity ($1.8 billion in cash and $4.1 billion in cash equivalents),
• $6.6 billion in unused and undrawn credit facilities.

These resources are sufficient to cover its expected $0.3 billion debt repayment and approximately $2 billion in lease expenses for 2025. Fitch anticipates that THY will generate positive free cash flow between 2024 and 2027.

Bosphorus Certificates and Aircraft Leasing

The Bosphorus Certificates have a strong structure due to favorable amortization profiles. Fitch notes that these bonds align with a 73.2% loan-to-value ratio. The collateral consists of three 2015-model Boeing 777-300ER aircraft.

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