Press Release

JCR-VIS Maintains Entity Ratings of Shaheen Air International Limited

Karachi, March 01, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained the entity ratings of ‘A-/A-2’ (Single A Minus/ A-Two) to Shaheen Air International Limited (SAI). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. Revision in rating outlook reflects significant weakening in financial profile and a challenging operating environment due to increasing fuel prices and expected increase in competition from upcoming operators. JCR-VIS expects profitability and leverage indicators of the company to improve over the rating horizon; however continuity of current levels of gearing may result in downward revision in the entity ratings. Previous rating action was announced on September 23, 2016.

The assigned ratings incorporate the company’s market position as the second largest domestic airline in Pakistan having a market share of 16% (FY16: 24%) and 11% (FY16: 9%) in domestic and international passenger traffic, respectively during FY17. The company also had a 27% market share in terms of hajj passengers carried during 2017. At end-FY17, SAI operated to 20 destinations (FY16: 23) comprising 9 domestic and 11 international routes. Going forward, route selection strategy of the company entails diversification to new routes to reduce reliance on existing routes where there is sizeable concentration in revenues. In line with management’s strategy, SAI also managed to considerably reduce fleet age which is projected to result in fuel cost savings. The entire fleet now comprises Airbus aircrafts which is forecasted to result in operational and maintenance cost efficiencies.

Total passenger traffic (domestic and international) in Pakistan has grown at a CAGR of 7% over the past five years with number of passengers reported at 18m during FY17 (FY12: 12.6m). Growth in international passenger traffic with a CAGR of 9% over the last five years has outpaced domestic passenger traffic with a CAGR of 2%. JCR-VIS’s assessment of the aviation sector in Pakistan is characterized by low barriers to entry (lease financing), vulnerability to economic downturns, increasing regulatory requirements and high leverage and cost structure posing high business risk. In the backdrop of expected new entrants over the next 18 months and rising fuel prices, competitive pressures are expected to intensify, going forward. However, demand outlook is projected to remain healthy as per independent estimates.

While revenues witnessed growth during FY17, the company reported negative bottom line due to sizeable loss on one of the new routes operated by SAI and other external regulatory factors. Quantum of losses have reduced during the first half of FY18, and based on profitability trend over the last quarter management expects to post profits for full year FY18 due to projected increase in utilization levels post approval of regulator to increase frequency of flights on existing routes. Going forward, ratings remain contingent on improvement in financial profile of the company.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 92-21-35311861-70 or fax to 92-21-35311873.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited