OREANDA-NEWS. August 10, 2015.  Fitch Ratings has assigned AVIC International Holding Corporation's (AVIC International; BBB/Stable) USD50m 5.45% senior unsecured notes due 2030 a rating of 'BBB'.

The notes are issued by AVIC International Finance Limited, and unconditionally and irrevocably guaranteed by AVIC International. The notes are rated at the same level as AVIC International's senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.

KEY RATING DRIVERS
Top-Down Approach: Fitch has notched AVIC International's IDR three levels below the internal assessment of the credit profile of its 62.52% parent, Aviation Industry Corporation of China (AVIC). This is to reflect its strong linkages with AVIC. The Stable Outlook reflects Fitch's expectation of continuous support from AVIC to AVIC International.

AVIC's credit profile is in turn assessed by notching down one level from China's Long-Term Issuer Default Rating (A+/Stable) to reflect the very strong linkage between AVIC and its 100% parent, the State-owned Assets Supervision and Administration Commission (SASAC).

Parent Pivotal to China's Defence: AVIC is of very high strategic importance to China's national defence. AVIC, which was originally a state-owned aircraft manufacturer, is the backbone of China's military and civilian aviation manufacturing industry. It has a monopoly in military aircraft and short-range missile manufacturing output and maintenance, with an 80%-90% share of the country's civilian aviation manufacturing output.

Strong Linkages with Parent: AVIC International is a core unit of and has strong operational and strategic ties with AVIC. It is responsible for importing all of AVIC's key material/parts, exporting 80% of AVIC's products/services and 75% of AVIC's subcontracting/outsourcing business. As AVIC monopolises the domestic market, AVIC International is in essence the only link between China and the global aviation industry. In addition to financial contribution, the subsidiary is also indispensable to AVIC's aviation operations.

Strong operational ties are evident in AVIC's management control over AVIC International, and AVIC's highly controlled centralised treasury management of subsidiaries' funds through AVIC Finance Co., Ltd, a licensed finance company. In addition, AVIC international is positioned by AVIC as its only strategic platform for globalisation and diversifying into non-aviation related sectors (except financial services).

Direct Support from AVIC to Continue: Between 1983 and 2000, AVIC provided guarantees to all of AVIC International's bank loans. AVIC also provided unconditional and irrevocable full guarantees for AVIC International's onshore bond offerings in 2006 and 2010, and its US dollar loan to acquire US-based Continental Aviation Engine in 2011. AVIC International has not only benefitted from the parent's reputation and referrals in bank borrowings, but also enjoyed guarantees from AVIC for banking facilities of CNY70bn from Export-Import Bank of China (A+/Stable), a policy bank fully owned by the Chinese government. Fitch expects AVIC to continue to provide guarantees for AVIC International's borrowings when necessary.

RATING ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue mix in the period up to 2016 to remain similar to that in 2013
- EBITDAR margin to be stable up to 2016
- Working-capital turnover days to remain stable

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating actions include:
- Negative rating action on the Chinese sovereign
- Weakening linkages between AVIC International and AVIC
- Weakening linkages between AVIC and the Chinese sovereign

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Positive rating action on the Chinese sovereign
- Strengthening linkages between AVIC International and AVIC
- Strengthening linkages between AVIC and the Chinese sovereign