OREANDA-NEWS. Fitch Ratings says that the expected acquisition of the financially troubled Transaero by Aeroflot may put pressure on passenger traffic at Domodedovo airport (DME) in Moscow. DME Ltd has a Issuer Default Rating of 'BB+' with Stable Outlook. DME Airport Ltd' senior unsecured notes are also rated at 'BB+'.

In acquiring a majority stake in the second largest airline in Russia Aeroflot will now be responsible for restructuring Transaero's operations and debt (see 'Fitch Downgrades Aeroflot to B+, Places on RWN' on www.fitchratings.com). In Moscow, Transaero operates from DME airport and Vnukovo airport (the third largest airport in Moscow), with Transaero passengers accounting for about 15% of traffic at DME. Although the share of Transaero flights at DME is not significant, the restructuring of the airline's operations is likely, in Fitch's opinion, to put pressure on traffic numbers in the short to medium term.

Aeroflot's restructuring strategy of Transaero's operations is unclear at present, but it is possible that this may involve cancelling Transaero's flights that overlap with Aeroflot's, cancelling loss-making routes and transferring some flights from DME to Sheremetyevo (Aeroflot's hub airport). It is also not certain whether Transaero will continue to operate as a standalone subsidiary within Aeroflot group or will be integrated into Aeroflot's operations.

Fitch expects traffic at DME to decline 6% in 2015, due to a weak domestic economy and sharp rouble devaluation in 2014. Based on operating results for 7M15, traffic at DME declined 6.8%, slightly worse than under Fitch's rating case. International traffic dropped significantly by 22% while domestic traffic continued to show strong growth of 12%.

The current ratings of DME have some headroom to accommodate negative trends. The company's leverage is fairly low (total debt/EBITDA was 1.6x at end-2014 based on Fitch's calculation which includes payment obligations under the concession). The natural hedge of currency risk (46% of revenues are collected in EUR/USD) mitigates the negative effects of the Russian rouble's depreciation.

Fitch will conduct a full review of the ratings by end-2015.