OREANDA-NEWS. Fitch Ratings says in a new report that it expects the positive momentum in the EMEA aerospace and defence market to continue throughout 2016.

The commercial aircraft market has been strong over the past six years and demand for aircraft remains solid. Nevertheless, Fitch believes there remains a slight risk of over optimism with regard to the demand dynamics in the commercial aerospace market from OEMs and financiers. The sector is cyclical, and our ratings reflect the likelihood of periodic downturns. Most exposed to commercial aerospace are Airbus (A-/Stable), Rolls-Royce (A-/Negative) and MTU Aero Engines (BBB-/Stable).

After a prolonged period of low and flat spending, defence budgets are likely to start rising in the short term in most European countries as well as in the US. Certain accessible emerging markets (Middle East, South-East Asia, LATAM) remain buoyant with regard to defence spending with budgets likely to remain robust through the medium term. Most exposed to global defence spending are BAE Systems (BBB/Stable) and Finmeccanica (BB+/Stable).

As most companies are at or near their targeted rating levels, company-specific factors such as strategic changes, programme execution and cash deployment are the main source of rating actions.

Strong liquidity levels, exemplified by high cash levels on balance sheets, underpin the mostly investment-grade ratings in the sector and remain a key driver of rating actions. Significant deliberate changes to liquidity profiles, eg, through a change in the shareholder remuneration policy, although considered by Fitch as unlikely to occur in the short- to medium-term, would have rating implications for most of the companies in the sector.

In the report, Fitch also highlights the most important issue to monitor in the next few months for each European aerospace and defence company. This Special Report, "EMEA Aerospace and Defence: Rating Drivers Monitor - The Key Factors Driving Ratings of Each Company in 2016", also assesses how much headroom each company has with regard to its rating guidelines.