israel aerospace industries ltd. · company's profitability (ebitda margins of about 7%) and...

Israel Aerospace Industries Ltd.

Primary Credit Analyst:

David Matthews, London (44) 20-7176-3611; [email protected]

Secondary Contacts:

Sivan Mesilati, RAMAT-GAN + 97237539735; [email protected]

Elad Jelasko, CPA, London (44) 20-7176-7013; [email protected]

Table Of Contents

Credit Highlights

Outlook

Our Base-Case Scenario

Company Description

Peer Comparison

Business Risk

Financial Risk

Liquidity

Covenant Analysis

Environmental, Social, And Governance

Government Influence

Ratings Score Snapshot

Related Criteria

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 17, 2020 1


Business Risk: WEAK

Vulnerable Excellent

Financial Risk: SIGNIFICANT

Highly leveraged Minimal

bb- bb-

bbb-

Anchor Modifiers Group/Gov't

Issuer Credit Rating

BBB-/Stable/A-3

Credit Highlights

Overview

Key strengths Key risks

Robust order backlog ($13.2 billion), equivalent to about

three-and-a-half years of revenue.

Less competitive and profitable civilian activities, which dilute the entire

company's profitability (EBITDA margins of about 7%) and cause it to lag

behind its immediate peers.

Predictable, long-term, defense-related contracts and revenue

streams, in addition to significant third-party funding for research and

development (R&D).

High customer concentration, with the four biggest customers

representing about 50% of sales.

Importance as a strategic asset to the Israeli government. Exposure to shifts in governments' regulations and administrative or

diplomatic changes; for example, the recent change in the U.S. aid budget

to to Israel.

Predictable financial policy, with a modest dividend policy and

limited track record of sizable mergers and acquisitions. A high cash

balance of more than $1 billion.

A relatively small capital expenditure (capex) budget that must be spread

across a diversified portfolio of products, making it tougher for the

company to sustain its technological edge.

Despite the negative impact of COVID-19 on the company's civilian operation, the positive momentum is likely to

continue in 2020 after 2019's record results. 2019 was the first full year following Israel Aerospace Industries Ltd.'s

(IAI's) reorganization. The company enjoyed higher revenue owing to previous awards and a lower cost structure,

which together led to a reported EBITDA of $300 million. The positive trend continued in the first half of 2020, with a

reported EBITDA of $223 million. Although the company reported record high EBITDA in the second quarter, this

could have been much higher without the negative impact of COVID-19 on IAI's civilian activities (airplane

maintenance and conversions), as air traffic came to a halt. At the same time, the company's defense activities

continued almost without interruption. Under our current base-case scenario, we project a reported EBITDA of $290

million-$320 million in 2020, which we expect to remain at about $300 million in 2021 as air traffic recovers and

undergoing military projects are delivered.

In addition, we expect the company to continue building important financial headroom under the rating with S&P

Global Ratings-adjusted funds from operations (FFO) to debt of 45%-50% in 2020, and further improvement in 2021,

compared with the 20%-30% range we see as commensurate with the current rating. Changes in the company's capital

structure (such as repayment of existing notes or acquisitions) could lead to a material change in the credit metrics.


The company's uncertain ability to achieve more than low-single-digit growth per year and sustain its technological

edge remains a key risk over the medium term. From 2012 to 2019, IAI achieved organic growth of about 3% per year

(and this would have been much lower without 2019's material growth). In our view, based on the current backlog, and

without the launch of new commoditized defense projects, the company will not be able to grow faster in the coming

years.

Compared with those of non-Israeli peers, we find IAI's portfolio to be too diversified in relation to its size, and focused

on a specific line of products. In our view, this diversification's positive contributions (for example, revenue stability

over the cycle) will become increasingly tough to maintain over time. The company's modest capex (about $180

million a year) needs to be spread across many products in order to sustain IAI's technological edge. In addition, the

budget limits the company's ability to invest in new technologies. For example, IAI decided not to invest in a new line

of business jets, and it now relies on a single business jet model.

Despite IAI's previous intentions to grow more rapidly through acquisitions outside Israel, we have seen no material

progress in this space. In our view, a deal that would be a "game changer", with a material upside to the company's

profitability, should be in the range of a few hundred million dollars, and in a field that complements IAI's existing

activities. We understand that only a small number of companies meet the long list of conditions, and that such a

transaction is unlikely to take place in the coming 12-18 months. That said, we believe that an IPO--with material

proceeds to the company--could increase the number of potential targets. In our view, IAI has the financial capacity to

execute a one-off transaction in the short term (before a potential IPO), without weighing on the rating.



Outlook: Stable

The stable outlook reflects our view that IAI will be able to maintain an order backlog of at least $9 billion and

EBITDA at or above $250 million on a sustainable basis in the coming years, with EBITDA margins of 5%-7%.

Under our base-case scenario, the company will continue to meet all those targets in the coming 12-18 months.

We expect the company to achieve adjusted FFO to debt of 45%-50% in 2020 with further upside above 50% in

2021, well above the level of 20%-30% that we consider commensurate with the current rating. Our base case

assumes that the company will maintain its existing capital structure and a conservative financial policy, and not

make any material acquisitions. While a partial debt-funded acquisition will have a material impact on the expected

credit metrics, those are likely to remain within the anticipated threshold.

The rating also assumes there will be no change in the Israeli government's stake in IAI.

Downside scenario

With the current headroom under the rating, we see a downside scenario as remote in the coming 12-24 months.

We could lower the rating of IAI if it could not replenish its backlog or if its asset quality deteriorated without a

timely adjustment of its cost structure. In our view, this could stem from fierce competition, requirements to

increase domestic production, or an inability to introduce new technologies, among other factors, translating into a

deterioration of the EBITDA margin below 5% or deterioration of adjusted FFO to debt consistently below 20%.

We could also consider lowering the ratings if we revised downward our assessment of the likelihood of

extraordinary government support. This could happen if the Israeli government moves forward with its plan to sell

a material minority stake in IAI, or if sales to the Israeli government decline.

Upside scenario

While the company already meets some of the conditions for a higher rating, we do not expect a positive rating

action in the coming six to 12 months. In our view, such a rating action would more likely be considered when

there is better visibility on the global economic growth prospects post-COVID-19, and on the governments'

spending on defense. The company's ability to build a longer track record of meeting the following conditions

would remain a pillar for a higher rating:

• Improving and maintaining an EBITDA margin of 7% or more;

• Adjusted FFO to debt of more than 30% (taking into account a debt-finances acquisition of several hundred

million U.S. dollars);

• A sustainable positive free operating cash flow (FOCF) generation; and

• Better visibility over the company's strategy following the nomination of a new CEO and the implementation of

another cost-cutting initiative program.

Other conditions that could support a higher rating include sustainable profitability of IAI's aviation division, with

the company continuing to renew its backlog of military contracts, while executing contracted orders in a timely

manner.



Lastly, any rating action would also take into account changes in the assessment of extraordinary governmental

support.

Our Base-Case Scenario

Assumptions

The following assumptions underpin our base-case scenario:

• Backlog: A gradual reduction in the backlog toward historical levels, after reaching a peak in 2019. This assumes the

potential reduction in the defense budget of key countries.

• Revenues: A potential decrease in the revenues (up to 5% under less favorable scenario) with a modest recovery in

2021. We assume drop of about 30% in the Aviation Group division's activity level, while the other divisions will

report revenue at the same level, or better than, 2019, thanks to by the execution of previously awarded contracts.

• EBITDA margins to remain about 7% or better, compared with 7.3% in 2019.

• Working capital: With no material changes in the revenue from defense customers, we do not assume changes in

the working capital from one year to the next. However, the company may be subject to material swings in

intra-year working capital. In the first half of 2020, the company saw a working capital outflow of more than $200

million, which is expected to reverse.

• Capex: A multiyear average of about $180 million, in line with the company's budget.

• Mergers and acquisitions (M&A): No significant M&A activity. Potential bolt-on acquisitions of up to $100 million in

2021.

Key Metrics

Israel Aerospace Industries Ltd.--Key Metrics

2019 2020 2021

ILS to U.S. dollar 3.46 3.48 3.5

Israel GDP (%) 3.5 (5.5) 6.5

Backlog (bil. $) 13.4 12.5-13.5 12.0-13.0

Reported EBITDA (mil. $) 300 290-320 290-340

Adjusted EBITDA (mil. $) 338 280-310 280-330

Capex 241 180 180

FOCF (mil. $) (268.0) 50-80 60-100

Dividends (10.0) (24.0) (10.0)

Acquisitions -- -- (100.0)

Adjusted debt to EBITDA (x) 1.4 1.6-1.7 1.5-1.7

Adjusted FFO to debt (%) 63.6% 45%-50% >50%

Cash balance (mil. $) 1,161 >1,000 About 1,000



Israel Aerospace Industries Ltd.--Key Metrics (cont.)

2019 2020 2021

Reported net debt (mil. $) (826.0) (840)-(860) (790-830)

Capex--Capital expenditure. FFO--Funds from operations. FOCF--Free operating cash flow.

Company Description

IAI develops civil and defense aerospace products, space systems, and electronic equipment. The company is divided

into four divisions: military aircraft, system missiles and space, electronics (ELTA), and aviation. Most of the

company's sales are outside Israel.

IAI is fully owned by the Israeli state and is one of the largest industrial companies in Israel, with close to 16,000

employees.

The company's main competitors in Israel include Rafael and Elbit Systems, while outside Israel it competes with

various companies in the aerospace and defense industry, such as Leonardo S.P.A and Triumph.

IAI's defense division covers military aircraft, missile systems (MSG), and communication systems (ELTA). Some of

the company's top products include unmanned aerial vehicles, military satellites, and high-end radars. In 2019, the

defense business lines reported a cumulative revenue of about $3.0 billion, and were responsible for almost all of the

company's gross profit (about $520 million).

Peer Comparison

Table 1

Israel Aerospace Industries Ltd.--Peer Comparison

Industry sector: Aerospace and defense

Israel Aerospace

Industries Ltd.

Spirit

AeroSystems Inc. Leonardo S.p.a.

Rafael Advanced

Defense Systems Ltd. Moog Inc.

Ratings as of July 20,

2020

BBB-/Stable/A-3 B+/Stable/-- BB+/Stable/B A-/Stable/A-2 BB+/Negative/--

--Fiscal year ended--

Dec. 31, 2019 Dec. 31, 2019 Dec. 31, 2019 Dec. 31, 2019 Sept. 28, 2019

(Mil. $)

Revenue 4,108 7,863 15,468 2,810 2,905

EBITDA 338 1,061 1,899 247 403

Funds from operations

(FFO)

309 854 1,580 235 322

Interest expense 45 101 252 21 45

Cash interest paid 12 102 242 13 45

Cash flow from

operations

-27 922 825 85 197

Capital expenditure 241 226 593 171 118



Table 1

Israel Aerospace Industries Ltd.--Peer Comparison (cont.)

Free operating cash flow

(FOCF)

-268 697 232 -86 78

Discretionary cash flow

(DCF)

-278 558 141 -256 -13

Cash and short-term

investments

1,161 2,351 2,202 97 90

Debt 486 857 4,896 518 957

Equity 922 1,762 5,986 1,228 1,322

Adjusted ratios

EBITDA margin (%) 8.2 13.5 12.3 8.8 13.9

Return on capital (%) 10.5 30.8 12.2 11.1 13.3

EBITDA interest

coverage (x)

7.5 10.5 7.5 11.9 8.9

FFO cash interest

coverage (x)

26.8 9.3 7.5 19.5 8.2

Debt/EBITDA (x) 1.4 0.8 2.6 2.1 2.4

FFO/debt (%) 63.6 99.6 32.3 45.3 33.7

Cash flow from

operations/debt (%)

(5.6) 107.6 16.8 16.4 20.6

FOCF/debt (%) (55.2) 81.3 4.7 (16.7) 8.2

DCF/debt (%) (57.2) 65.1 2.9 (49.4) (1.3)

On comparing Israel Aerospace Industries Ltd. with its peers from the wider industry, we assess it as having a weaker

business risk profile, mainly owing to the scale of its core markets and profitability. For example, Moog Inc., which

focuses solely on precision control components, has revenue of about $3 billion and profitability margins of 13%-15%

over the cycle. At the same time, IAI benefits from stronger credit metrics, especially when taking into account the

company's large cash position. Aside from Rafael Advanced Defense Systems Ltd., the ratings on the peers do not

include an uplift from extraordinary governmental support.



Chart 1

Business Risk: Weak

Our assessment of IAI's business risk profile incorporates a below-average competitive positioning in the wider

aerospace and defense industry, owing to its heavy cost structure and limited scale, resulting in weak operating

margins compared with those of its peers. Our assessment of IAI's business risk profile as weak also reflects its

significant exposure to less attractive and highly competitive civil markets-maintenance and commercial aerospace.

IAI's revenue predominantly comes from its military markets (70%-75%) and the rest from the civilian markets

(25%-30%). About 75% of revenue comes from exports outside Israel.

The aviation division will continue to weigh on the company's performance. Historically, the company's operations in

the civilian activities (that is, the maintenance, repair, and overhaul of civil aircraft, and the manufacturing of business

jets) were less profitable due to the company's heavy cost structure--comprising an absolute workforce which is not

flexible, and its average salaries--leading to marginal profitability at best. The company tried to address these issues as

part of its reorganization process in 2018, merging the activities into a single division and materially reducing the

workforce. While the division should become more profitable than in the past, it will continue to remain the weak link

in IAI's business model, namely during downturns such as the current one.

IAI has a robust order backlog. Typically, IAI's order backlog provides very good visibility of the coming 12 months,

decent visibility over the subsequent 12 months, and limited visibility over the third year and beyond. As of June 30,

2020, IAI's backlog was about $13.2 billion.

We continue to view the order backlog as an important factor in our rating on IAI. Given the long process (nonbinding

offers, qualifications, signing agreements, and product delivery) involved in signing a contract and IAI's limited



flexibility to adjust its workforce, we consider a backlog of $7 billion-$8 billion to be in line with the current rating.

Defense contracts tend to be long term, and in some cases very large ($1 billion and more), while civilian orders tend

to be short term and rather small (up to several dozen million). In order to avoid over reliance on mega contracts, the

company is trying to shift some of its focus to smaller projects. This shift will also help the company to decrease the

risk associated with mega projects (such as delays, complexity, and political consideration). We understand that Asia's

share of the backlog is sizable, followed by Israel and North America.

In our view, the recent change in the U.S. aid budget to Israel, whereby the Israeli government will need to use the

budget to buy from U.S. companies, rather than Israeli companies, poses a medium- to long-term risk.

Financial Risk: Significant

Our assessment of IAI's financial risk profile is based on an adjusted FFO to debt in the range of 20%-30% during the

cycle, together with slightly positive FOCF (excluding changes in working capital). This assessment also takes into

account the company's ability to maintain a sizable cash balance to accommodate swings in working capital and a

manageable maturity profile. Other supportive elements include a systematic approach to hedge its currency

mismatch, and a dividend policy which is linked to its results.

IAI has no public financial policy in place, but tend to use the financial covenants under its facilities as a benchmark for

its leverage. Other supportive elements include the company's track record of maintaining a large cash position on the

balance sheet, a systematic hedge program, and no limited pressure on dividends.

As of June 30, 2020, IAI's adjusted debt was close to $500 million, which included $470 million in long-term debt, and

obligations to employees of about $285 million. IAI has a comfortable debt maturity debt. While the company carries

sizable cash and liquid sources on its balance sheet (about $1.1 billion as of June 30, 2020), we deduct relatively small

amounts from the debt equal to the company's maturities in the next two years. We believe that the rest of the cash,

which stems from customer advance payments (about $2.3 billion as of June 30, 2020), is not fully available to service

the debt, and may decrease unless the company maintains or increases the backlog.

The capex budget may be insufficient to support the portfolio's depth. Like most peers, IAI invests about 8%-9% of

revenue in capex and R&D, equivalent to about $150 million-$200 million per year. This amount more than triples

when including the external R&D sources. That said, in contrast to its peers, the depth of IAI's portfolio is a

disadvantage, because the company needs to share its small budget in absolute terms over a wide variety of products.

For example, until 2017, the company's business jet portfolio included two planes, with one (G150) coming to the end

of its lifecycle. Budget constraints and less attractive returns forced the company to focus on other projects, and as of

today the company's portfolio includes only a single plane. In our view, the budget constraints have also had an impact

on IAI's ability to convert some military knowledge into commercial products. By comparison, IAI's Italian peer,

Leonardo SpA, which works in several divisions, invests 2x-3x more than IAI for the same amount of revenue.

More acquisition will be needed to accelerate IAI's geographical footprint and technological capabilities. In recent

years, IAI was slightly more active in the mergers and acquisitions space, and made several small acquisitions. While

those acquisitions are unlikely to have a big impact on the company's portfolio, they do signal a change in the

company's approach. We understand that IAI may look to undertake a strategic investment of up to several hundred

millions to improve its geographical footprint in different areas or subsegments. However, this is not part of our base



case. Such an acquisition, if it took place, could have a positive impact on the company's business risk profile, and to a

lesser extent a negative impact on the financial risk profile, even if it were fully funded by debt.

Financial summaryTable 2

Israel Aerospace Industries Ltd.--Financial Summary

Industry sector: Aerospace and defense

--Fiscal year ended Dec. 31--

2019 2018 2017 2016 2015

(Mil. $)

Revenue 4,108 3,682 3,520 3,577 3,708

EBITDA 338 230 286 77 183

Funds from operations (FFO) 309 208 280 36 177

Interest expense 45 55 56 46 48

Cash interest paid 12 24 21 21 21

Cash flow from operations (27) 345 329 175 65

Capital expenditure 241 165 146 163 139

Free operating cash flow (FOCF) (268) 180 183 12 (74)

Discretionary cash flow (DCF) (278) 180 178 12 (83)

Cash and short-term investments 1,161 1,479 1,303 1,344 1,399

Gross available cash 1,161 1,479 1,570 1,344 1,399

Debt 486 566 724 682 735

Equity 922 836 993 904 1,006

Adjusted ratios

EBITDA margin (%) 8.2 6.2 8.1 2.1 4.9

Return on capital (%) 10.5 3.0 9.3 (4.9) 3.8

EBITDA interest coverage (x) 7.5 4.2 5.1 1.7 3.8

FFO cash interest coverage (x) 26.8 9.6 14.2 2.7 9.4

Debt/EBITDA (x) 1.4 2.5 2.5 8.9 4.0

FFO/debt (%) 63.6 36.7 38.8 5.3 24.1

Cash flow from operations/debt (%) (5.6) 60.9 45.5 25.7 8.8

FOCF/debt (%) (55.2) 31.8 25.4 1.8 (10.1)

DCF/debt (%) (57.2) 31.8 24.7 1.8 (11.3)

ReconciliationTable 3

Israel Aerospace Industries Ltd.--Reconciliation Of Reported Amounts With S&P Global Ratings' AdjustedAmounts (Mil. $)

--Fiscal year ended Dec. 31, 2019--

Israel Aerospace Industries Ltd. reported amounts

Debt Shareholders' equity EBITDA

Interest

expense

S&P Global Ratings'

adjusted EBITDA

Reported 335.0 897.0 343.0 33.0 338.0



Table 3

Israel Aerospace Industries Ltd.--Reconciliation Of Reported Amounts With S&P Global Ratings' AdjustedAmounts (Mil. $) (cont.)

S&P Global Ratings' adjustments

Cash taxes paid -- -- -- -- (17.0)

Cash interest paid -- -- -- -- (12.0)

Postretirement benefit

obligations/deferred compensation

285.3 -- -- 12.0 --

Accessible cash and liquid

investments

(134.7) -- -- -- --

Dividends received from equity

investments

-- -- 7.0 -- --

Noncontrolling interest/minority

interest

-- 25.0 -- -- --

EBITDA: Other -- -- (12.0) -- --

Total adjustments 150.6 25.0 (5.0) 12.0 (29.0)

S&P Global Ratings' adjusted amounts

Debt Equity EBITDA

Interest

expense

Funds from

operations

Adjusted 485.6 922.0 338.0 45.0 309.0

Liquidity: Strong

The short-term rating is 'A-3'. We assess IAI's liquidity as strong. Over the 12 months from June 30, 2020, we

anticipate that sources of income will cover uses by over 4x. Our assessment is supported by the company's sizable

cash on the balance sheet and its limited debt maturities in the coming years, which can be refinanced fairly easily in

the Israeli capital market given the company's current yields.

On the other hand, our assessment also takes into account the fact that IAI does not use bank lines for meaningful

short-term funding, but instead uses its considerable advances from customers as primary funding sources. As of June

30, 2020, the outstanding guarantees were about $2.7 billion. Bank lines are used to issue guarantees for customers,

while other long-term funding is sourced through the local capital market.

Principal liquidity sources

• $1.1 billion of cash and marketable securities as of March 31, 2020; and

• FFO of $140 million-$160 million in the 12 months starting June 30, 2020. This range takes into account the early

retirement payments.

Principal liquidity uses

• Debt maturities of $115 million in the next 12 months (including short-term debt);

• Capex of about $180 million per year;

• Potential swings in working capital, depending on customer advances, which themselves depend on the timing of

new contract engagements and adherence to the project timetable. In first-half 2020, the company saw a working

capital outflow of more than $200 million, most of which is expected to be reversed later this year;



• Israeli state-owned companies have a generic policy of 50% of their net income as a dividend. We assume that

payments will continue to be relatively modest; and

• No acquisitions.

Covenant Analysis

IAI has several financial covenants, including minimal equity, gearing, and leverage ratios. As of March 31, 2020, the

company met all the covenants. Under our base case, the company will continue to maintain sufficient headroom

under the covenants in the coming 12-18 months.

Environmental, Social, And Governance

In our view, IAI, like other aerospace and defense companies, is exposed to governance risks--and, to a lesser

extent, to social issues--while environmental issues are somewhat less relevant. Overall, we believe that the

company manages its environmental, social, and governance (ESG) exposure adequately. However, its reporting

standards still lag behind its European and North American peers.

Social

IAI relies on skilled labor to execute its projects on time and on budget. In addition, the company is responsible for

workers' safety amid the use of large and dangerous equipment. IAI has a good safety track record, with no

material accidents in recent years.

Governance

The aerospace and defense sector is exposed to bribery, corruption, and anticompetitive practices, because of the

magnitude of contracts and the competitive process necessary to secure contracts. Ethical breaches typically result

in investigations by public authorities, large fines, reputational damage, and being banned from competing in future

projects. Those cases are more common in emerging countries, where the legal framework is usually weaker. For

example, in June 2009, the Indian government banned another Israeli defense company, IMI, from conducting

business in the country for 10 years, after some unethical payments to certain key decision makers in India were

exposed. The case raised questions around other contracts that were signed in the same period. As of today, India

is considered to be a key market for the Israeli defense industry, including IAI.

In 2017, the Israeli authorities have initiated several investigations in relation to bribery cases, some of which are

ongoing. We understand that those cases relate to acquiring local services (for example, catering services), and that

the issues are minor, without any connection to the company's products or services.

Government Influence

We view the likelihood of timely and sufficient extraordinary financial support to IAI from the Israeli government, if



needed, as high, resulting in three notches of uplift to the stand-alone credit profile (SACP). We base this view on our

assessment of IAI's:

• Very important role in Israel's economy, due to the group's range of defense products, some of which are important

for the Ministry of Defense. In this respect, the link between the two goes beyond the 20% sales to the state; and

• Strong link with the Israeli state, which fully owns IAI. On several occasions over the past few years, the

government has discussed selling a minority share in the company, while maintaining ownership. At this stage, we

are not aware of a concrete and defined timeline for such a transaction. Although a sale could reduce IAI's link with

the government, it could also reduce bureaucracy and improve operational flexibility.

In our view, a reduction in the governmental ownership or an expansion of the company's business outside Israel may

result in a lower uplift to the SACP, but at the same time could result in a stronger SACP.

Our view of potential governmental support does not include influence on IAI in the form of R&D subsidies, which are

a relatively common feature in the aerospace and defense industry; favorable contracts; or access to preferential

funding or guarantees. However, the Israeli government puts numerous restrictions on IAI, including on technology

exports and the acquisition of companies overseas. We incorporate these factors into our SACP assessment.

Ratings Score Snapshot

Issuer Credit Rating

BBB-/Stable/A-3

Business risk: Weak

• Country risk: Intermediate

• Industry risk: Intermediate

• Competitive position: Weak

Financial risk: Significant

• Cash flow/leverage: Significant

Anchor: bb-

Modifiers

• Diversification/portfolio effect: Neutral (no impact)

• Capital structure: Neutral (no impact)

• Financial policy: Neutral (no impact)

• Liquidity: Strong (no impact)

• Management and governance: Fair (no impact)

• Comparable rating analysis: Neutral (no impact)

Stand-alone credit profile : bb-



• Likelihood of government support: High (+3 notches from SACP)

Related Criteria

• General Criteria: Group Rating Methodology, July 1, 2019

• Criteria | Corporates | General: Corporate Methodology: Ratios and Adjustments, April 1, 2019

• Criteria | Corporates | General: Methodology and Assumptions: Liquidity Descriptors for Global Corporate Issuers,

Dec. 16, 2014

• Criteria | Corporates| Industrials: Key Credit Factors for the Capital Goods Industry, Nov. 19, 2013

• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

• General Criteria: Country Risk Assessment Methodology and Assumptions, Nov. 19, 2013

• General Criteria: Methodology: Industry Risk, Nov. 19, 2013

• General Criteria: Methodology: Management and Governance Credit Factors for Corporate Entities, Nov. 13, 2012

• General Criteria: Use of CreditWatch and Outlooks, Sept. 14, 2009

Business And Financial Risk Matrix

Business Risk Profile

Financial Risk Profile

Minimal Modest Intermediate Significant Aggressive Highly leveraged

Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+

Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb

Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+

Fair bbb/bbb- bbb- bb+ bb bb- b

Weak bb+ bb+ bb bb- b+ b/b-

Vulnerable bb- bb- bb-/b+ b+ b b-

Ratings Detail (As Of August 17, 2020)*


Issuer Credit Rating BBB-/Stable/A-3

Issuer Credit Ratings History

28-Jun-2017 BBB-/Stable/A-3

27-Sep-2016 BBB-/Negative/A-3

06-Jul-2010 BBB-/Stable/A-3

*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable

across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and

debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.




STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminateits opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com(subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees isavailable at www.standardandpoors.com/usratingsfees.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result,certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain theconfidentiality of certain non-public information received in connection with each analytical process.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&Preserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of theassignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact.S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make anyinvestment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. TheContent should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when makinginvestment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information fromsources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publicationof a periodic update on a credit rating and related analyses.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may bemodified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission ofStandard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-partyproviders, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness oravailability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the useof the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESSOR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOMFROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANYSOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive,special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused bynegligence) in connection with any use of the Content even if advised of the possibility of such damages.

Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

israel aerospace industries ltd. · company's profitability (ebitda margins of about 7%) and...

Documents