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Israel Aerospace Industries Ltd.

Primary Credit Analyst:

Omri Stern, London (44) 20-7176-7117; [email protected]

Secondary Contacts:

Sivan Mesilati, RAMAT-GAN; [email protected]

David Matthews, London (44) 20-7176-3611; [email protected]

Table Of Contents

Credit Highlights

Outlook

Our Base-Case Scenario

Company Description

Business Risk

Financial Risk

Liquidity

Covenant Analysis

Environmental, Social, And Governance

Government Influence

Reconciliation

Ratings Score Snapshot

Related Criteria

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 8, 2019 1

Table Of Contents (cont.)

Related Research



Business Risk: WEAK

Vulnerable Excellent

Financial Risk: SIGNIFICANT

Highly leveraged Minimal

bb- bb-

bbb-

Anchor Modifiers Group/Gov't

Issuer Credit Rating

BBB-/Stable/A-3

Credit Highlights

Overview

Key Strengths Key Risks

Robust order backlog, equivalent to about three years of revenues. Heavy cost structure and lack of scale in Israel Aerospace Industries

Ltd.'s (IAI's) civilian operations, which results in EBITDA margins of

5%-7%, well below the margins of its peers.

Predictable, long-term, defense-related contracts and revenue streams, in

addition to significant third-party funding for research and development

(R&D).

High customer concentration, with the four biggest customers

representing about 50% of sales.

Importance as a strategic asset to the Israeli government. Exposure to shifts in government regulation and administrative or

diplomatic changes.

Predictable financial policy, with a modest dividend policy and limited

track record of sizable mergers and acquisitions. A high cash balance of

around $1.3 billion is linked to considerable advance payments.

Recent changes to the U.S. aid budget, which have created

medium-to-long term risks.

Heavy cost structure and low margins are a major disadvantage against direct peers in the highly competitive defense

industry. The competition landscape in Israel is very complex, with three companies (IAI, Rafael Advanced Defense

Systems Ltd. [Rafael], and Elbit Systems Ltd.) having overlapping operations, but at the same time, collaborating on

other projects. Following the acquisition of the Israeli state-owned rival IMI System, Elbit Systems became the largest

defense player in Israel, allowing it to offer some alternatives to IAI's products. Both Elbit Systems and Rafael are

focused on the defense industry, resulting in better profitability and cash flows.

We view the defense industry as highly competitive. The pressure on defense budgets results in a shift from

state-of-the-art packages to more affordable products. In addition, governments prefer to sign contracts with domestic

manufacturers. As of today, IAI's marketing strategy focuses on participation in different defense programs where IAI

benefits from technological expertise. We believe that the move toward more affordable products and domestic

manufacturing could be challenging for the company, given its lack of scale and presence outside Israel.

Management has been working to improve profitability for some time, and IAI is in the final stages of a multi-year

transformation period that started with a reorganization in late 2016, reducing the workforce by 830 employees, and

continued through 2018 and 2019. The next major milestones include achieving the required synergies from the


merger of the aviation operations into one division starting January 2019, negotiating a new wage agreement with the

labor unions in 2019, and expanding the company's footprint outside Israel.

All of the above actions should support margin improvements in 2019 and 2020 and will enable the company to be

more competitive in the industry.

Strategic importance to the Israeli government is a key strength, although it creates costumer concentration and inhibits

competitiveness in external markets. IAI, through its defense divisions, is a strategic asset for the Israeli government,

which remains one of its single-largest customers, accounting for about 20%-25% of sales in recent years. The

company benefits from ongoing government support in the form of R&D subsidies and favorable contracts. In addition,

the Israeli army serves as quality reassurance for other customers of IAI. At the same time, since some of the products

are classified, the company cannot sell them to external markets. In addition, the company is exposed to risks such as

government regulation, administrative changes, and diplomatic changes that could affect orders from foreign

ministries of defense.

Changes in the U.S. aid budget have created a medium-to-long term risks. In early September 2016, the Israeli

government signed a new security framework agreement with the U.S. government covering the next 10 years. Under

the terms of the deal, which was effective from October 2018, the U.S. will provide $38 billion for 10 years in military

aid to Israel. This equates to $33 billion in foreign military financing grants, plus $5 billion in defense appropriations for

missile defense programs.

Based on the new agreement, the share of aid that Israel will be able to convert into Israeli shekels for procurement in

local industries will gradually decrease from $815 million in 2019 to $450 million in 2025 and zero in 2028. In our view,

this feature, which will kick in after seven years into the agreement, poses a medium-term risk for the Israeli defense

industry, equating to a loss of sales of about $800 million a year. To overcome this medium- to long-term risk, IAI will

have to find solutions, such as moving operations to the U.S. or acquiring U.S. companies. Failure to do so could create

a significant shift from the Israeli defense budget to U.S.-based companies and negatively affect IAI's earnings and

revenues. In 2018, IAI's sales to the Israeli Ministry of Defense were about $785 million or 21% of its turnover.

The change in U.S. policy is not unique: we are seeing a similar change in India, where the Indian government has put

the emphasis on local production. At the moment, all of IAI's production capabilities are focused on Israel. Our

base-case scenario does not factor the costs linked to IAI expanding its footprint outside Israel. That said, we believe

that an acquisition outside Israel is likely in the coming three years.



Outlook: Stable

The stable outlook reflects our view that IAI will be able to maintain an order backlog of at least $9 billion and

EBITDA at or above $250 million on a sustainable basis in the coming years, with EBITDA margins of 5%-7%.

We expect the company to achieve S&P Global Ratings-adjusted funds from operations (FFO) to debt of around

35% over our two-year rating horizon. Our base case assumes that the company will maintain its existing capital

structure and a conservative financial policy, and not make any material acquisitions.

The rating also assumes there will be no change in the Israeli government's stake in IAI.

Downside scenario

We see the risk of a downgrade as remote in the next 12-24 months. We could lower the rating if IAI could not

replenish its backlog or if its asset quality deteriorated without a timely adjustment of its cost structure. In our

view, this could stem from fierce competition, requirements to increase domestic production, or an inability to

introduce new technologies, among other factors, translating into a deterioration of the EBITDA margin below 5%

and/or deterioration of adjusted FFO to debt consistently below 20%.

We could also consider lowering the ratings if we revised downward our assessment of the likelihood of

extraordinary government support. This could happen if the Israeli government moves forward with its plan to sell

a material minority stake in IAI, or if sales to the Israeli government decline.

Upside scenario

We could consider taking a positive rating action if IAI improves its current profitability, and sustainably generates

an EBITDA margin of 7% or more, with FFO to debt of more than 30% and sustainable positive FOCF generation.

Other conditions that could support a higher rating include sustainable profitability in the civil operations, with the

company continuing to renew its backlog of military contracts while executing contracted orders in a timely

manner.

Our Base-Case Scenario



Assumptions Key Metrics

The following assumptions underpin our base-case

scenario:

• About a 4% increase in revenues in 2019 and 2020,

based on a continuous increase in the backlog. We

note that about 90% of the revenues for 2019 and

about 70% of the revenues in 2020 are secured by

the existing order backlog.

• A limited correlation between macroeconomic

assumptions and the company's results over the

short term. However, the results will rely on the

company's ability to deliver projects on time and

without cost overruns.

• A U.S. dollar to Israeli new shekel (ILS) exchange

rate of about $1 to ILS3.5 in the coming two years,

similar to the current exchange rate.

• A negative effect of about $50 million-$100 million

in free operating cash flow (FOCF) in the next two

years, as the company is negotiating a new

reorganization program.

• Volatile working capital swings, but without a direct

impact on the company's financial debt. As of today,

most of the cash on the balance sheet stems from

customer advance payments, which we do not

deduct from debt.

• Capital expenditure (capex) at the same level of

previous years of about $150 million-$170 million

per year.

• Potential bolt-on acquisitions of $100 million-$200

million per year.

2018A 2019E 2020E

Adjusted EBITDA* (mil. $) 229.9 280-300 280-300

Debt to EBITDA* (x) 2.5 2.4-2.6 2.3-2.5

FFO to debt* (%) 36.7% 35%-40% 35%-40%

*S&P Global Ratings-adjusted. A--Actual. E--Estimate.

FFO--Funds from operations.

Base-case projections

Credit ratios should remain stable in the next 12-24 months, but could change in the future.Under our base-case

scenario, we assume that IAI will generate low-single-digit revenue growth and low-double-digit FOCF in 2019 and

2020. This is because of cash outflow toward retirees and relatively high capex. We project that FFO to debt in 2019

and 2020 will be about 35%-37%, compared to the 20%-25% we see as commensurate with the rating. That said, the

ratios could change quite materially after the company's decision to expand its manufacturing reach outside Israel, as

well as a change in the company's gross debt level.



The margin decline in 2018 was temporary and should reverse in 2019 and beyond.The 2018 results were negatively

affected by several one-off items that included a conversion agreement with Boeing, a delayed project in India, and an

investment in the "Bereshit" project. Those pushed margins down to around 6.2% from 8.0% previously. Looking to

2019, we remain more positive as the company starts delivering recently signed contracts, and the margin should

climb back up over 7%. We could see further upside to the results following the merger of the civilian operations into

the aviation division, which should create cost synergies and support an improvement in margins toward 8%.

Chart 1

Company Description

IAI develops civil and defense aerospace products, space systems, and electronic equipment. The company is divided

into four divisions: military aircraft, system missiles and space, electronics (ELTA), and aviation. Most of the

company's sales are outside Israel.

IAI is fully owned by the Israeli state and is one of the largest industrial companies in Israel, with close to 15,000

employees.

IAI's main competitors in Israel include Rafael and Elbit Systems, while outside Israel it competes with various

companies in the aerospace and defense industry.



Chart 2

Business Risk: Weak

IAI's business risk profile reflects our view of its heavy cost structure and lack of scale, resulting in below-average

operating margins compared with those of peers (historic EBITDA margins of 5%-7%, compared to peers' margins of

more than 10%). Our assessment also reflects IAI's significant exposures to less attractive and highly competitive civil

markets--maintenance and commercial aerospace.

These weaknesses are partially offset by our view of IAI's well-diversified order backlog; broad geographic presence in

defense markets; good market positions resulting from the company's technological strengths; and the strategic

importance of some of its products for the state of Israel.

IAI's revenues predominantly come from its military divisions (70%-75%) and the rest from the civilian divisions

(25%-30%). About 75% of the revenues come from exports outside Israel.

Defense activities

IAI's defense divisions cover military aircraft, missile systems, and communication systems. Some of the company's

top products include unmanned aerial vehicles, military satellites, and high-end radars. In 2018, the defense divisions



were responsible for almost all of the company's gross profit.

IAI benefits from good technological expertise, which helps it to maintain leading positions in certain product

categories such as drones and air defense systems. However, unlike some of its peers, IAI is not focused on specific

products, but its portfolio covers a wide range of products. In our view, this presents it with an additional challenge to

maintain its technological edge over time, competing with more focused or larger companies.

Outside Israel, IAI's defense products are marketed mainly to Asia (predominantly India). Unlike some of its

competitors, the company has restrictions on marketing its products to certain countries, including China, Russia, and

the Middle East. On the other hand, IAI finds it very challenging to compete with the industry giants in their domestic

markets, namely the U.S. and Europe. As a result, the company's overall market reach is limited.

Civilian divisions

IAI's civilian divisions cover manufacturing of executive aircraft and of aircraft parts, and the maintenance, renovation,

upgrade, and conversion of aircraft. In 2018, the civilian divisions reported revenues of about $1.3 billion with $100

million of gross profit. In January 2019, IAI completed the merger of the civilian activities into a single division

(aviation division), counting around 5,000 employees. This program follows an organization plan that reduced the

workforce by 830 employees.

IAI's executive jet business is tied to a long-term agreement with Gulfstream to manufacture G280 jet planes (midsize

executive planes). Under this agreement, Gulfstream is responsible for the sales and marketing of the planes, and IAI

for manufacturing them. The G280 jet plane was introduced in 2012, and the typical lifecycle of this plane is 10-15

years. We consider the executive jet business to be highly volatile, and yet to return to what it was before the global

financial crisis in 2008. In the coming 12 months, the company will need to decide on the strategic direction of this

division. Such a decision will need to incorporate the division's poor results over the past decade, and the heavy

investment that is needed to extend the life of the G280 or to enter into new initiatives. Alternatively, the company can

let the division shrink and exit the activity with the retirement of the G280.

We consider the maintenance, repair, and overhaul of civil aircraft operations to be a commodity type of business.

Demand for this business is subject to general airline trends and the ability to offer competitive prices. IAI has a

structural disadvantage compared to its rated peers due to its cost structure, having both a sizable workforce and high

salaries.

Order backlog

Typically, IAI's order backlog provides very good visibility of the next 12 months, decent visibility over the 12 months

after that, and limited visibility in the third year and beyond. The lifecycle of a defense contract is rather long, including

nonbinding offers, qualifications, signing agreements, and product delivery. The defense contracts tend to be long-term

contracts, while the civilian orders tend to be short-term.

We continue to view the order backlog as an important factor in our rating. In our view, given the long process

involved in signing a contract and IAI's limited flexibility to adjust its workforce, any drop in the backlog below $7

billion-$8 billion could put pressure on the company's results over the medium term, and may raise concerns about the

company's competitiveness.



As of March 31, 2019, IAI's backlog was at a record high of $13.7 billion, compared to the trough of $8.5 billion in

2016. The constant increase in the size of the backlog in recent years supports good visibility of revenue growth in the

next three years. In light of the volatility in the backlog, the company is trying to shift some of its focus to smaller

projects, offsetting some of the risk associated with mega projects, such as those related to potential delays,

complexity, and political considerations. We understand that the share of Asia in the backlog is sizable, followed by

Israel and North America.

Peer comparisonTable 1

Israel Aerospace Industries Ltd. Peer Comparison

Israel Aerospace

Industries Ltd.

Leonardo

S.p.a. Moog Inc.

Spirit AeroSystems

Inc.

Rafael Advanced

Defense Systems Ltd.

Ratings as of Aug. 8,

2019

BBB-/Stable/A-3 BB+/Stable/B BB+/Stable/-- BBB-/Stable/-- A-/Stable/A-2

--Fiscal year ended Dec. 31, 2018--

--Fiscal year ended

Sept. 29, 2018--

--Fiscal year ended

Dec. 31, 2018--

--Fiscal year ended

Dec. 31, 2018--

(Mil. $)

Revenue 3,682.0 14,013.5 2,709.5 7,222.0 2,493.5

EBITDA 229.9 1,777.5 336.3 1,065.3 215.4

Funds from operations

(FFO)

207.7 1,497.7 259.2 789.6 203.5

Interest expense 55.1 264.9 42.4 61.2 14.0

Cash interest paid 24.1 295.8 42.8 73.4 11.8

Cash flow from

operations

344.7 435.2 117.9 775.5 (30.8)

Capital expenditure 165.0 606.8 94.5 271.2 147.4

Free operating cash

flow (FOCF)

179.7 (171.6) 23.4 504.3 (178.2)

Dividends paid 0.0 92.7 17.9 48.0 0.0

Discretionary cash flow

(DCF)

179.7 (264.3) (88.1) (365.1) (178.2)

Cash and short-term

investments

1,479.0 2,345.9 125.6 773.6 697.2

Debt 565.8 5,024.7 941.2 1,218.0 0.0

Equity 836.0 5,163.5 1,225.0 1,238.1 1,180.3

Adjusted ratios

Annual revenue growth

(%)

4.6 6.2 8.5 3.4 14.6

EBITDA margin (%) 6.2 12.7 12.4 14.8 8.6

Return on capital (%) 3.0 11.8 11.1 31.1 13.6

EBITDA interest

coverage (x)

4.2 6.7 7.9 17.4 15.4

FFO cash interest

coverage (x)

9.6 6.1 7.1 11.8 18.2

Debt/EBITDA (x) 2.5 2.8 2.8 1.1 0.0

FFO/debt (%) 36.7 29.8 27.5 64.8 N.M.



Table 1

Israel Aerospace Industries Ltd. Peer Comparison (cont.)

Cash flow from

operations/debt (%)

60.9 8.7 12.5 63.7 N.M.

FOCF/debt (%) 31.8 (3.4) 2.5 41.4 N.M.

DCF/debt (%) 31.8 (5.3) (9.4) (30.0) N.M.

N.M.--Not meaningful.

Financial Risk: Significant

We project that FFO to debt in 2019 and 2020 will be over 35% and debt to EBITDA will be around 2.5x. These ratios

will be subject to benefits from the reorganization program, as well as limited changes in IAI's gross debt, following

recurring debt amortization. On the flip side, we expect that the company would be able to generate only modest

FOCF (excluding changes in working capital) in the coming years.

Other key elements that underpin IAI's financial risk profile are:

• Volatile working capital. IAI's working capital is subject to material swings (mainly customer advance payments and

works-in-progress). These changes in working capital are linked directly to the company's contracted orders.

Therefore, an increase in the backlog will result in a working capital inflow. For example, in 2016, the company saw

swings of more than $450 million between the working capital peak and trough.

• Currency mismatch. Most of the company's revenues are dominated in U.S. dollars, while its costs, mostly salary

payments, are dominated in new Israeli shekels. With very tight margins, the volatility of the exchange rate could

have a material impact on the company's profitability. The company mitigates the volatility by entering into 12-24

month rolling currency hedges. However, the hedges cannot address unfavorable exchange rates if they persist for a

longer period.

As of Dec. 31, 2018, IAI's adjusted debt was $566 million, which included $384 million in long-term debt, obligations to

employees of about $238 million, and operating leases of $112 million. IAI has a comfortable debt maturity profile.

While the company carries sizable cash and liquid sources on its balance sheet (about $1.3 billion as of March 31,

2019), we deduct relatively small amounts from the debt equal to the company's maturities in the next two years. We

believe that the rest of the cash, which stems from customer advance payments (about $2.45 billion as of March 31,

2019), is not fully available to service the debt and may decrease unless the company maintains or increases the

backlog.

Capex budget may be insufficient to support the portfolio's depth

Like most peers, IAI invests about 8%-9% of revenues in capex and R&D, equivalent to about $150 million per year.

This amount more than triples when also including the external R&D sources. That said, in contrast to its peers, the

depth of IAI's portfolio is a disadvantage as the company needs to spread its small budget in absolute terms over a

variety of products. For example, this budget would be sufficient to extend the current life of the G280 or to convert

some military knowledge into commercial products. In comparison, IAI's Italian peer, Leonardo SpA, which works in

several divisions, invests 2x-3x more than IAI for the same amount of revenues.



We understand that IAI may look to undertake a strategic investment of up to several hundred millions to improve its

geographical footprint in different areas or sub-segments. We view this as pure event risk and do not include it in our

base case, under which we assume bolt-on acquisitions of about $100 million-$200 million a year. We expect such

acquisitions to have an impact on IAI's currently healthy credit metrics, but a limited impact on the financial risk

profile.

Financial summaryTable 2

Israel Aerospace Industries Ltd. -- Financial Summary

--Fiscal year ended Dec. 31--

2018 2017 2016 2015 2014

(Mil. $)

Revenue 3,682.0 3,520.0 3,577.0 3,708.0 3,827.0

EBITDA 229.9 285.8 76.5 183.0 249.0

Funds from operations (FFO) 207.7 280.5 36.2 177.0 227.9

Interest expense 55.1 56.3 46.3 48.0 44.1

Cash interest paid 24.1 21.3 21.3 21.0 19.1

Cash flow from operations 344.7 329.5 175.2 65.0 (176.1)

Capital expenditure 165.0 146.0 163.0 139.0 168.0

Free operating cash flow (FOCF) 179.7 183.5 12.2 (74.0) (344.1)

Dividends paid 0.0 5.0 0.0 9.0 10.0

Discretionary cash flow (DCF) 179.7 178.5 12.2 (83.0) (354.1)

Cash and short-term investments 1,479.0 1,303.0 1,344.0 1,399.0 1,532.0

Gross available cash 1,479.0 1,570.0 1,344.0 1,399.0 1,532.0

Debt 565.8 723.6 682.4 734.5 792.0

Equity 836.0 993.0 904.0 1,006.0 939.0

Research and development 180.0 182.0 165.0 179.0 165.0

Adjusted ratios

Annual revenue growth (%) 4.6 (1.6) (3.5) (3.1) 5.1

EBITDA margin (%) 6.2 8.1 2.1 4.9 6.5

Return on capital (%) 3.0 9.3 (4.9) 3.8 6.6

EBITDA interest coverage (x) 4.2 5.1 1.7 3.8 5.6

FFO cash interest coverage (x) 9.6 14.2 2.7 9.4 12.9

Debt/EBITDA (x) 2.5 2.5 8.9 4.0 3.2

FFO/debt (%) 36.7 38.8 5.3 24.1 28.8

Cash flow from operations/debt (%) 60.9 45.5 25.7 8.8 (22.2)

FOCF/debt (%) 31.8 25.4 1.8 (10.1) (43.4)

DCF/debt (%) 31.8 24.7 1.8 (11.3) (44.7)

Liquidity: Strong

The short-term rating is 'A-3'. We assess IAI's liquidity as strong. Over the 12 months from March 31, 2019, we



anticipate that sources of income will cover uses by around 3x. Our assessment is supported by the company's sizable

cash on the balance sheet and its limited debt maturities in the coming years, which can be refinanced fairly easily in

the Israeli capital market given the company's current yields.

On the other hand, our assessment also takes into account the fact that IAI does not use bank lines for meaningful

short-term funding, but instead uses its considerable advances from customers as primary funding sources. As of

March 31, 2019, the outstanding guarantees were about $2.6 billion. Bank lines are used to issue guarantees for

customers, while other long-term funding is sourced through the local capital market.

Principal Liquidity Sources Principal Liquidity Uses

• $1.28 billion of cash and marketable securities as of

March 31, 2019; and

• FFO of $160 million-$200 million in the next 12

months starting March 31, 2019. This range takes

into account the early retirement payments.

• Debt maturities of $83 million in the next 12 months;

• Capex of about $150 million-$170 million per year;

• Potential swings in working capital, depending on

customer advances, which themselves depend on

the timing of new contract engagements and

adherence to the project timetable; and

• Fairly modest dividend payments, of up to a

maximum of $50 million. Israeli state-owned

companies have a generic dividend policy of 50% of

their net income as a dividend.

Debt maturities



Chart 3

Covenant Analysis

IAI has several financial covenants, including minimal equity, gearing, and leverage ratios. As of March 31, 2019, the

company met all the covenants. Under our base case, the company will continue to meet all the covenants through to

the end of the year.

Environmental, Social, And Governance

We do not see environmental or social risks as material to our rating on IAI. The company's manufacturing

operations do have modest exposure to waste and toxic substance, but any clean-up costs related to its defense

business would likely be largely reimbursed by the end-customer.

Social risks are moderate. Given that the majority of the company's customers are Israeli and other countries'

militaries and government agencies, concerns for national safety will far outweigh social issues as these concerns

relate to demand for IAI's lethal military products.

We view IAI's governance as fair, reflecting its extensive strategic planning and risk management processes.



Government Influence

We view the likelihood of timely and sufficient extraordinary financial support from the Israeli government for IAI, if

needed, as high, resulting in three notches of uplift to the stand-alone credit profile (SACP). We base this view on our

assessment of IAI's:

• Very important role in Israel's economy, due to the company's range of defense products, some of which are

important for the Ministry of Defense. In this respect, the link between the two goes beyond the 20% sales to the

state; and

• Strong link with the Israeli state, which fully owns IAI. On several occasions over the past few years, the

government has discussed selling a minority share in the company, while maintaining ownership. At this stage, we

are not aware of a concrete and defined timeline for such a transaction. Although such a sale could reduce IAI's link

with the government, it could also reduce bureaucracy and improve operational flexibility.

Our view of potential governmental support does not include influence on IAI in the form of R&D subsidies, which are

a relatively common feature in the aerospace and defense industry; favorable contracts; or access to preferential

funding or guarantees. On the other hand, the Israeli government puts numerous restrictions on IAI, including on

technology exports and on acquisitions of companies overseas. We incorporate these factors into our SACP

assessment.

Reconciliation

Table 3

Reconciliation Of Israel Aerospace Industries Ltd. Reported Amounts With S&P Global Ratings' AdjustedAmounts

--Fiscal year ended Dec. 31, 2018--

Israel Aerospace Industries Ltd. reported amounts

(Mil. $) Debt

Shareholders'

equity EBITDA

Operating

income

Interest

expense

S&P Global

Ratings' adjusted

EBITDA

Cash flow

from

operations

384.0 821.0 189.0 12.0 35.0 229.9 313.0

S&P Global Ratings' adjustments

Cash taxes paid -- -- -- -- -- 2.0 --

Cash taxes paid--other -- -- -- -- -- -- --

Cash interest paid -- -- -- -- -- (15.0) --

Operating leases 112.1 -- 40.9 9.1 9.1 (9.1) 31.7

Postretirement benefit

obligations/deferred

compensation

238.3 -- -- -- 11.0 -- --

Accessible cash and liquid

investments

(168.6) -- -- -- -- -- --

Nonoperating income

(expense)

-- -- -- 25.0 -- -- --



Table 3

Reconciliation Of Israel Aerospace Industries Ltd. Reported Amounts With S&P Global Ratings' AdjustedAmounts (cont.)

Noncontrolling

interest/minority interest

-- 15.0 -- -- -- -- --

Total adjustments 181.8 15.0 40.9 34.1 20.1 (22.1) 31.7

S&P Global Ratings' adjusted amounts

Debt Equity EBITDA EBIT

Interest

expense

Funds from

operations

Cash flow

from

operations

565.8 836.0 229.9 46.1 55.1 207.7 344.7

Ratings Score Snapshot

Issuer Credit Rating

BBB-/Stable/A-3

Business risk: Weak

• Country risk: Intermediate

• Industry risk: Intermediate

• Competitive position: Weak

Financial risk: Significant

• Cash flow/Leverage: Significant

Anchor: bb-

Modifiers

• Diversification/Portfolio effect: Neutral (no impact)

• Capital structure: Neutral (no impact)

• Financial policy: Neutral (no impact)

• Liquidity: Strong (no impact)

• Management and governance: Fair (no impact)

• Comparable rating analysis: Neutral (no impact)

Stand-alone credit profile : bb-

• Likelihood of government support: High (+3 notches from SACP)

Related Criteria

• General Criteria: Group Rating Methodology, July 1, 2019

• Guidance | Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019



• General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018

• Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March 28, 2018

• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

• General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015

• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate

Issuers, Dec. 16, 2014

• Criteria | Corporates | Industrials: Key Credit Factors For The Aerospace And Defense Industry, March 25, 2014

• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

• General Criteria: Methodology: Industry Risk, Nov. 19, 2013

• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD'

Ratings, Oct. 24, 2013

• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers,

Nov. 13, 2012

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related Research

• Industry Top Trends: European Aerospace and Defense, July 25, 2019

• Industry Top Trends: North American Aerospace and Defense, July 25, 2019

Business And Financial Risk Matrix

Business Risk Profile

Financial Risk Profile

Minimal Modest Intermediate Significant Aggressive Highly leveraged

Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+

Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb

Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+

Fair bbb/bbb- bbb- bb+ bb bb- b

Weak bb+ bb+ bb bb- b+ b/b-

Vulnerable bb- bb- bb-/b+ b+ b b-

Ratings Detail (As Of August 8, 2019)*


Issuer Credit Rating BBB-/Stable/A-3

Issuer Credit Ratings History

28-Jun-2017 BBB-/Stable/A-3

27-Sep-2016 BBB-/Negative/A-3



Ratings Detail (As Of August 8, 2019)*(cont.)

06-Jul-2010 BBB-/Stable/A-3

*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable

across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and

debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.

Additional Contact:

Industrial Ratings Europe; [email protected]




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Documents

Israel Aerospace Industries Ltd. - IAI › drupal › sites › default › files › 2019-09...Israel Aerospace Industries Ltd. Primary Credit Analyst: Omri Stern, London (44) 20-7176-7117;