OREANDA-NEWS. Fitch Ratings has affirmed Russia-based Sukhoi Civil Aircraft JSC's (SCAC) Long-Term Issuer Default Ratings (IDR) at 'BB' with a Stable Outlook.

State Support
In line with Fitch's parent subsidiary linkage methodology, SCAC's ratings are notched down three levels from the ratings of its ultimate majority shareholder, the Russian government (BBB/Stable). The three-notch differential reflects the company’s strong links to the state but also the lack of explicit state guarantee for SCAC’s debt. However, a high proportion of SCAC’s debt comes from state-owned banks while state-owned intermediate holding companies, including United Aircraft Corporation and Sukhoi Aviation Holding, provide guarantees in support of a material proportion of SCAC’s debt. The Outlook reflects that on the Russian government.

Due to the government’s shareholding, Fitch expects SCAC to continue to receive support from the Russian state via further equity injections over and above what has already been contributed. Any waning, or perceived waning, of that support, is likely to lead to SCAC's ratings being further notched down from those of the sovereign.

Super Jet 100
The relationship between SCAC and the Russian government is underpinned by the strategic importance of the Super Jet 100 (SSJ 100) aircraft to the state, which is likely to be the entry point for other Russian commercial aircraft programmes such as the MS21. The SSJ 100 is the only product SCAC has delivered to date, although a business jet version has been launched and is scheduled to be delivered in 2014. A stretch version of the SSJ 100 is likely to be delivered around 2018.

Expected CIS and Emerging Market Demand
Other factors influencing the ratings are strong domestic demand for the SSJ 100 (152 orders taken to date plus 53 options/soft orders), the presence of French-based engine manufacturer SNECMA as a risk-sharing partner on the SSJ 100 programme, and the long-term potential for cash flow generation. On a standalone basis, however, SCAC is unlikely to be profitable in the next two years.

RATING SENSITIVITIES
Future developments that could lead to positive or negative rating actions include:

-Changes to the sovereign ratings, which could prompt a review of the company's IDRs, National Ratings and Outlook

-Any strengthening of state support, such as a provision of written guarantees of SCAC's debt from the Russian Ministry of Finance, would likely lead to a closer rating linkage between SCAC and the government. A weakening of support, such as a reduction in the state's shareholding in SCAC, or a waning commitment to the company's programmes, could lead to a widening of the rating gap between Russia and SCAC.