We have selected five criteria for TAA Financial Ratings that are tailored to the unique characteristics of the airline industry, in particular the use of operating leases as a major source of aircraft financing:
|Average Fleet Age||Average age of operating fleet|
|EBITDAR Margin||EBITDAR/Total revenue - Earnings before interest, tax, depreciation, amortization and rents as a percentage of total revenues - a measure of operating efficiency and profitability that is not affected by choice of financing structures of aircraft|
|Fixed Charge Cover||EBITDAR/Net interest + Aircraft rent - measures the "number of times" EBITDAR covers the sum of net interest expense plus aircraft rent|
|Liquidity||Unrestricted cash as % of trailing twelve months' revenues - indicates the size of the liquidity cushion the airline has to withstand events such as strikes, groundlings and natural disasters|
|Leverage||Adjusted Net Debt/EBITDAR - Balance Sheet Debt minus Unrestricted Cash plus capitalised aircraft operating lease rentals divided by EBITDAR|
Accordingly, we evaluate EBITDAR rather than EBITDA margin, Fixed Charge Cover includes aircraft rent in the denominator and Leverage incorporates net balance sheet debt plus an adjustment for operating leases (8 x trailing twelve months rent).