Ebola Raises Airline Bond Risk Evoking SARS Scare: Japan Credit
The bond risk of ANA Holdings Inc.
rose the most of any company in Japan as the spread of Ebola to
two health workers in the U.S. rekindled memories of the SARS
epidemic in 2002 and 2003.
The cost to insure the debt of the airline from non-payment
jumped 30 basis points to 133 basis points in the five days to
Oct. 17, its biggest weekly increase in two years, according to
data provider CMA. Protection on United Airlines Inc. widened 46
in the same period to 348, the sharpest weekly advance since
June 2012. The average of 12 global carriers was 284 basis
points, CMA data show.
The World Health Organization said on Oct. 14 that West
Africa faces as many as 10,000 new cases a week by December,
raising concern airlines may be hit if the disease spreads
internationally. Passenger traffic to Asia dropped 30 percent in
the second quarter of 2003 when severe acute respiratory
syndrome, a lung disease spread through the air, saw travelers
avoid the worst affected regions.
“A large number of us are employed long enough to remember
what happened in SARS,” said Timothy Ross, the head of Asia-Pacific transport research at Credit Suisse Group AG in
Singapore. “Were we to see Ebola mushroom to those sorts of
proportions, then this is dire.”
Ross said he’s inclined now “to believe it’s something of
an overreaction by investors,” though airline stocks in Asia
may fall if an outbreak is reported in the region.
Airline Shares
The Bloomberg Asia-Pacific Airlines Index of shares is down
0.3 percent since Oct. 13, while the MSCI Asia-Pacific Index is
little changed. The Bloomberg United States Airlines Index
tumbled 11 percent in the week to Oct. 10, its biggest drop in
about 2 1/2 years, before gaining 4.2 percent last week.
“The market is looking at the Ebola cases in the U.S. and
that’s raising worries about air travel,” said Yusuke Ueda, a
Tokyo-based credit analyst at Bank of America Merrill Lynch.
The Markit iTraxx Japan index of corporate credit-default
swaps rose 8.2 basis points to 78.9 last week, CMA data show.
Weak U.S. economic data and concern Ebola will spread soured
sentiment, according to an SMBC Nikko Securities Inc. report
dated Oct. 17.
The SARS outbreak infected about 8,100 people, killed 774
and reached more than two dozen countries, the WHO said. Ebola,
which causes bleeding in internal organs, is in theory less
contagious because it’s contracted via direct contact with
infected bodily fluids.
SARS Reaction
The Bloomberg Asia-Pacific Airlines Index dropped 10
percent in the first four months of 2003 as SARS spread, before
rebounding the rest of the year.
Tokyo-based ANA’s corporate bonds have so far shown little
reaction to the Ebola news, as unprecedented Bank of Japan
stimulus compresses yields.
The airline’s 15 billion yen of 2026 notes sold Sept. 11,
its longest debt in 15 years, traded at a yield premium of 34
basis points over yen swaps, near the lowest since issuance,
Bloomberg-compiled data show. A basis point is 0.01 percentage
point.
The probability Japan’s biggest airline won’t be able to
pay its debt in the coming 12 months has dropped to 0.095
percent from 0.14 percent at the end of last year, according to
Bloomberg’s default-risk model, which considers factors such as
share prices, debt levels and interest costs.
Profit Rebound
ANA’s profit rebounded in the quarter ended June 30, helped
by international route expansion. It posted net income of 3.5
billion yen versus a year-earlier loss of 6.6 billion yen. The
company forecasts an 86 percent increase in income to 35 billion
yen in the year ending March 31, 2015, it said in a statement on
July 30.
Japan’s benchmark 10-year bond yield was at 0.485 percent,
the lowest in the world after Switzerland. The yen has weakened
1.6 percent this year to 107.10 per dollar as of 6:15 p.m. in
Tokyo yesterday.
Bruce Aylward, the WHO’s assistant director-general, said
on Oct. 14 that the number of confirmed Ebola cases has reached
8,914, with 4,447 deaths since the outbreak in West Africa. It’s
still expanding geographically in Guinea, Sierra Leone, Liberia,
he said.
While there have been no reported cases in Japan or
elsewhere in Asia, President Barack Obama and Japanese Prime
Minister Shinzo Abe discussed cooperating to fight against the
disease in a telephone call last week.
Little Risk
Japan’s Health Ministry says on its website there’s
“almost no” chance of an outbreak of the disease in the
country. The health ministry asked local governments and health
care authorities on Oct. 3 to review existing procedures to deal
with suspected cases.
United Airlines took Thomas Eric Duncan, who became the
first Ebola patient to be diagnosed in the U.S., on the last two
legs of a three-stage journey to Texas from Liberia last month.
Duncan, who died Oct. 8, passed on the disease to two nurses
including Amber Vinson, who helped care him at the Texas Health
Presbyterian Hospital in Dallas.
ANA hasn’t seen any drop in demand from Ebola, said Ryosei Nomura, a Tokyo-based spokesman for the company. The airline is
making announcements on some overseas flight to ask passengers
who have visited African countries affected by the disease to
inform quarantine when disembarking, in line with government
requests, he said.
“A week or so’s containment of any spread of the virus
particularly in the U.S., where people are looking for
leadership, would dispel a lot of fears,” Credit Suisse’s Ross
said.
To contact the reporters on this story:
Finbarr Flynn in Tokyo at
fflynn3@bloomberg.net;
Tesun Oh in Tokyo at
toh15@bloomberg.net;
Chris Cooper in Tokyo at
ccooper1@bloomberg.net
To contact the editors responsible for this story:
Katrina Nicholas at
knicholas2@bloomberg.net
Ken McCallum
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