Fitch downgrades China Eastern Airlines

Fitch Ratings said it downgraded China Eastern Airlines Co. Ltd.'s foreign- and local-currency issuer default ratings to B+ from BB-. The outlook is stable.

The agency said the downgrade primarily reflects China Eastern's substantially declined profitability, caused by a 36.8% hike in operating expenses relative to a 28.4% growth in revenues, and increased debt levels, which substantially weakened the carrier's major credit ratios.

China Eastern raised its debt levels in 2005, with total bank loans increasing by 55.1%. The agency estimated that the company's total adjusted debt net of cash to operating EBITDAR increased to around 10x in 2005 from 7.5x in 2004 as a result.

The stable outlook reflects Fitch's expectation that China Eastern will maintain steady growth in air traffic, revenues and operating cash flows.

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