1、 10TH EDITION Industry Credit Outlook 2025 February 4,2025 This report does not constitute a rating action.Industry Credit Outlook 2025 February 4,2025 2 Foreword Dear reader,We recently published our Industry Credit Outlook 2025 reports for corporate and infrastructure industries,the 10th annual ed

2、ition of this series.We designed these reports to communicate our credit views on rated companies and the industries in which they operate.They draw on the assessments of more than 5,500 corporate and infrastructure entities that we rate globally.This publication brings the 25 individual reports tog

3、ether into a single volume,along with our assessment of the common themes that emerge.The global corporate sector is in a relatively healthy position.Despite the difficulties posed by interest rates moving structurally higher,a minor earnings recession,resurgent inflation,supply chain disruptions,an

4、d a significant debt hangover resulting from the pandemic period,we enter the year with many positives.The global economy appears to have achieved a remarkable and historically rare soft landing.Inflationary pressures have eased,and rates are consequently falling.Buoyant global financial markets hav

5、e lowered financial risk premia and eased the significant burden of refinancing debt.Our analysts expect positive revenue and EBITDA growth for all industries,margins are still expanding,leverage declining,and interest coverage recovering.Even so,this is an outlook fraught with anxiety.The new U.S.a

6、dministration is expected to be forceful in relation to tariff and trade policy,with the potential for damaging trade wars.The health of the corporate sector brings risks that companies begin to lose financial discipline and increase leverage to undertake M&A or boost shareholder returns.Prospects f

7、or weaker credits are inherently subject to economic and financial volatility.AI and climate transition bring both risks and opportunities.Best wishes Gareth Williams Head of Corporate Credit Research S&P Global Ratings London Yucheng Zheng Director Credit Research&Insights S&P Global Ratings New Yo

8、rk Gregg Lemos-Stein Chief Analytical Officer-Corporate Ratings Co-Chair,Global CCC S&P Global Ratings New York Acknowledgements We would like to thank all the colleagues who have contributed to this report to provide you with S&P Global Ratings essential insights.Special thanks to Marissa Scott in

9、marketing and to our editorial team:Samuel Zanger,Miguel Martin-Garcia,Kelliann Delegro,Alex Ilushik,Allie Bower,Annie McCrone,Elora Karim,Jasper Moiseiwitsch,Jonathan Greene,Kai Ruthrof,Natalie Thompson,Oliver Dirs,Rosanne Anderson,Vickie Scullar.Industry Credit Outlook 2025 February 4,2025 3 Conte

10、nts Key Themes 5 Corporate Aerospace and Defense Manufacturing as fast as the supply chain will allow 15 Autos Cloudy skies loom over the auto industry 27 Building Materials Stable credit quality on a weaker foundation 41 Capital Goods Global friction could grind down growth in 2025 69 Chemicals Som

11、e improvement,but most markets remain challenged 83 Consumer Products Volumes remain anemic even as brands rein in pricing 93 Engineering and Construction E&C continues to expand on sound infrastructure spending 109 Healthcare Ratings deterioration to moderate as cash flows improve 122 Homebuilders

12、and Developers Tariffs will test the foundation 132 Hotels,Gaming,and Leisure Travel and leisure spending faces policy uncertainty 151 Media and Entertainment Watching for potential M&A 168 Metals and Mining Critical assets support credit quality 185 Oil and Gas The industry credit profile should re

13、main healthy 194 Real Estate Office REITs lag the sectors recovery 203 Retail and Restaurants Cautious consumer discretionary spending persists 224 Technology Tech demand is strong but subject to U.S.trade policy 242 Telecommunications Stronger signals for the sector 258 Industry Credit Outlook 2025

14、 February 4,2025 4 Transportation High fares and rates cover high costs,for now 285 Infrastructure Asia Pacific Utilities Balancing a need for growth with the challenge of transition 299 EMEA Utilities Energy transition investments reduce rating headroom 318 Latin America Utilities Political interfe

15、rence,high interest rates burden the industry 328 Midstream Energy Credit quality is on solid ground 338 North America Competitive Power Demand surge and IRA repeal risk dominate credit outlook 349 North America Regulated Utilities Capex and climate change pressures credit quality 360 Transportation

16、 Infrastructure Revenue growth moderates amid geopolitical uncertainties 376 Industry Credit Outlook 2025 February 4,2025 5 Gareth Williams London Head of Corporate Credit Research Yucheng Zheng New York Director,Credit Research&Insights Gregg Lemos-Stein New York Chief Analytical Officer,Corporate

17、Ratings gregg.lemos- Industry Credit Outlook 2025 Key Themes Growth and anxiety The fundamental credit outlook appears healthy but clouded by anxiety.Last years concerns around the global economy,interest rates,and refinancing have faded,supplanted by worry as to what the new U.S.administrations foc

18、us on tariffs and trade might mean for costs,supply chains,labor supply,and the assumption that dwindling inflationary pressures will allow interest rates to continue falling.Our analysts also highlight concerns that improved operating and financing conditions might start to encourage a greater focu

19、s on M&A and shareholder returns,which could undermine the significant recovery in credit metrics seen since the pandemic.Chart 1 Chart 2 Tariffs,trade,M&A,and financial policy are the main risks for 2025,with macroeconomic anxieties less pronounced Most frequently cited risks to sector outlook for

20、2024 Most frequently cited risks to sector outlook for 2025 Source:S&P Global Ratings Source:S&P Global Ratings Trade policy is the great unknown.It is not yet clear how far the second Trump administration will go in implementing a forewarned shift to higher tariffs and forceful bilateral trade acti

21、ons,how long such actions might stay in place,nor the scale of retaliatory measures.The potential consequences for demand,costs,and supply chains loom large,along with any resultant financial market volatility creating a more difficulty financing environment.A surging U.S.dollar 0246810121416Macro c

22、onditionsRates andfinancingSupply chain andcost inflationMacro conditionsRates and financingSupply chain and cost inflation0246810121416Tariffs and trade M&A and financialpolicyRates andfinancingTariffs and tradeM&A and financial policyRates and financing The corporate outlook appears fundamentally

23、healthy with broad-based growth,margins expanding,leverage falling,and interest coverage recovering.Anxiety around the potential for trade and tariff conflict is widespread,given the potential risks for demand,inflation,financial market volatility,and supply chains.AI,climate risks,and energy transi

24、tion are the broader themes with most tangible credit risk and opportunity,given uncertain outcomes and substantial financial requirements.Industry Credit Outlook 2025 February 4,2025 6 and more rapid inflation could make it more difficult for central banks to cut interest rates,rekindling financing

25、 pressures and worsening an already poor demand environment in Europe and Asia-Pacific.This risk is the most frequently cited negative risk to our baseline views.The corporate growth outlook is overwhelmingly positive.We expect positive median revenue and EBITDA growth in 2025 for almost all industr

26、ies,both investment grade and speculative grade.The pattern of fastest and slowest growing sectors is expected to echo 2024.Growth is likely weakest for commodity sectors(metals and mining,oil and gas),telecoms,autos,and consumer products.Aerospace and defense,technology,and homebuilders are sectors

27、 seen likely to deliver strong revenue and EBITDA growth,reflecting continuing theme around global rearmament,the AI-led technology investment cycle,and long-term demand for housing.Chart 3 Chart 4 Global median revenue and EBITDA growth in 2025 for investment grade issuers by industry Global median

28、 revenue and EBITDA growth in 2025 for speculative grade issuers by industry Source:S&P Global Ratings.Calculated as of Jan.29,2025.All units are USD.Charts are ranked in descending order of estimated median revenue growth.Margins should expand further,particularly for speculative-grade entities.We

29、forecast higher median nonfinancial corporate profit margins across all ratings categories this year,particularly for CCC-and B-rated entities(see chart 6),where a degree of catch up from the earnings slowdown is at play.This broad margin strength is echoed in industry forecasts too,with a most sect

30、ors likely to see margins rise this year,both for investment and speculative-grade companies(see chart 7).Structurally higher labor costs remain a concern for labor-intensive sectors.In health care,labor costs remain elevated,and we expect they will remain so long term,given continued shortage of he

31、alth care professionals.For retailers,input costs are expected to remain manageable but high labor costs are sticky and likely to necessitate store closures,particularly in markets like the U.K.,where labor taxes are set to rise.In the transportation sector,structurally higher labor costs are projec

32、ted given still tight labor markets and wage agreements ratified in 2024.A further risk exists for U.S.entities such as homebuilders,which have been heavily reliant on immigrant labor,likely to become less readily available as U.S.policy shifts.In contrast,the-2+0+2+4+6+8+10+12+14+16Metals and minin

33、gOil and gasTelecommunication servicesConsumer productsTransportation infrastructureAutosRetail and restaurantsChemicalsHotels gaming and leisureReal estatePaper and packagingEngineering and constructionCapital goodsBuilding materialsHomebuilders and developersHealthcareBusiness and consumer service

34、sTransportationAerospace and defenseUtilitiesMediaTechnologyY/Y%Revenue growthEBITDA growth-2+0+2+4+6+8+10+12+14+16Consumer productsAutosReal estateMetals and miningTelecommunication servicesMediaBuilding materialsHotels gaming and leisurePaper and packagingRetail and restaurantsUtilitiesCapital goo

35、dsOil and gasTransportationChemicalsBusiness and consumer servicesHealthcareEngineering and constructionTransportation infrastructureTechnologyHomebuilders and developersAerospace and defenseY/Y%Revenue growthEBITDA growthIndustry Credit Outlook 2025 February 4,2025 7 application of AI and other eme

36、rgent technologies may offer companies the ability to reduce labor costs.In the consumer products sector,for example,digital tools will likely help optimize processes and supply chains and partly offset higher labor costs.Chart 5 Chart 6 Margins are expected to rise further in 2025,particularly for

37、AA-rated issuers and more generally for speculative grade Global nonfinancial investment-grade corporate issuers Median EBITDA margin by rating Global nonfinancial speculative-grade corporate issuers Median EBITDA margin by rating Source:S&P Global Ratings.Calculated as of Jan.29,2025.All units are

38、USD.Global and regional aggregates exclude utility and real estate entities.Chart 7 Nearly all industry sectors should see EBITDA margins expand above their five-year average Global nonfinancial investment-grade corporate issuers median EBITDA margins by industry 05101520253020202021202220232024e202

39、5e2026eIGAAABBB05101520253020202021202220232024e2025e2026eSGBBBCCC-70-60-50-40-30-20-1001005101520253035404550Homebuilders and developersTransportationMetals and miningHealthcareRetail and restaurantsPaper and packagingConsumer productsUtilitiesChemicalsTelecommunication servicesAutosTechnologyMedia

40、Capital goodsBusiness and consumerservicesBuilding materialsEngineering and constructionAerospace and defenseHotels gaming and leisureOil and gas2021202220232024e2025e2025e/5yravg(%)RHSIndustry Credit Outlook 2025 February 4,2025 8 Global nonfinancial speculative-grade corporate issuers median EBITD

41、A margins by industry Source:S&P Global Ratings.Calculated as of Jan.29,2025.Ranked right to left by prospective 2025 margin relative to five-year average margin(%).Supply chain pressures have dissipated for the most part.The aerospace and defense sectors are where problems remain most acute,with ma

42、ny issuers building as fast as their supply chain will permit them to,and supply chain challenges are likely to persist through 2025 and into 2026.Other sectors report progress:in autos,supply chain issues and widespread component shortages eased further in 2024,for big box retailers,supply chain is

43、sues have largely diminished,and medical device and product companies will see margin improvement because supply chain pressures and shipping costs have eased.Although tariff and trade conflict could lead to resurgent supply chain problems,tariff measures in the first Trump administration and the CO

44、VID-19 pandemic have already led to significant efforts to limit supply chain risk.For example,there has been a long-term trend across the toy industry to make fewer toys and games in China by relocating factories and diversifying supply chains,and the technology industry is working to diversify its

45、 supply chain away from China.With EBITDA growth likely to outpace debt issuance,leverage multiples will fall.We expect the median debt/EBITDA for B-issuers to fall to 6.8x in North America and 7.2x in Europe(see charts 8 and 9).This is lower than or close to 2019 leverage for North America and Euro

46、pe,respectively,and a reduction in leverage of about a turn and a half from the pandemic-era peak.However,not all industries have been able to deleverage.Median speculative-grade leverage for North American real estate,and European paper,packaging,aerospace and defense are all still significantly hi

47、gher than in 2019,for instance(see charts 10 and 11),although this is not the case for a majority of sectors in both regions.Capital investment needs,M&A activity,and private-equity distributions are key factors seen most likely to curb deleveraging.For example,for North America regulated utilities,

48、our expectation of continued increasing capital spending over the next decade means that we expect financial performance and credit quality will continue to be pressured.Global automakers and suppliers are having to juggle capital investment needs related to electric vehicles,with uncertain demand a

49、nd the aggressive expansion of Chinese OEMs.AI investment and energy transition are amongst factors requiring a sustained period of elevated capex.For Asia-Pacific power operators,debt-funded capital capex for renewables expansion will stay high and add to their debt burden.AI We estimate capital sp

50、ending by large data center players Microsoft,Alphabet,-70-60-50-40-30-20-10010200102030405060Metals and miningTelecommunication servicesHomebuilders and developersChemicalsAutosTransportationBuilding materialsCapital goodsBusiness and consumerservicesConsumer productsOil and gasHealthcarePaper and

51、packagingRetail and restaurantsEngineering and constructionTechnologyHotels gaming and leisureMediaUtilitiesAerospace and defense2021202220232024e2025e2025e/5yravg(%)RHSIndustry Credit Outlook 2025 February 4,2025 9 and Meta Platforms increased about 50%in 2024,and will grow by more than 20%in 2025.

52、This marks an incremental$30 billion expansion in 2025 on top of nearly$50 billion growth in 2024.Chart 8 Chart 9 Median B-rated debt/EBITDA multiples fall to their 2019 level by the end of 2025 reflecting recovering growth and margins North American nonfinancial corporate issuers Median debt/EBITDA

53、 by rating European nonfinancial corporate issuers Median debt/EBITDA by rating Source:S&P Global Ratings.Calculated as of Jan.29,2025.All units are USD.Global and regional aggregates exclude utility and real estate entities.Chart 10 Chart 11 Most speculative-grade sectors have reduced leverage belo

54、w 2019 levels North American speculative-grade nonfinancial corporates Median debt/EBITDA by industry European speculative-grade nonfinancial corporates Median debt/EBITDA by industry Source:S&P Global Ratings.Calculated as of Jan.29,2025.Ranked by descending order of difference between 2025 estimat

55、ed leverage and 2019.M&A activity will likely continue to recover at a modest rate.While there is some concern for the implications for credit metrics,there is little sense of a breakdown in capital discipline.Inevitably the political and regulatory environment will also have a significant bearing o

56、n acquisition activity levels,with industries such as aerospace,defense,media,and technology 7.3x7.5x8.2x8.3x7.9x7.4x6.8x6.1x0 x1x2x3x4x5x6x7x8x9x20192020202120222023 2024e 2025e 2026eB-BB+BB-BB7.1x8.6x7.9x8.7x8.4x8.0 x7.2x6.6x0 x1x2x3x4x5x6x7x8x9x20192020202120222023 2024e 2025e 2026eB-BB+BB-BB2.6x

57、1.5x5.1x4.4x4.2x4.4x4.3x5.6x4.2x6.1x2.9x5.1x4.7x4.7x6.0 x5.4x5.0 x4.4x5.3x4.5x4.9x10.7x-1.2-1.1-0.8-0.6-0.5-0.5-0.5-0.5-0.4-0.2-0.2-0.0-0.0+0.1+0.2+0.4+0.5+0.5+0.5+0.7+0.8+2.90 x2x4x6x8x10 x12x14x16x18x20 xMetals and miningOil and gasPaper and packagingMidstream energyAutosCapital goodsUtilitiesBusi

58、ness and consumer servicesRetail and restaurantsHealthcareHomebuilders and developersConsumer productsHotels gaming and leisureAerospace and defenseTechnologyTelecommunication servicesBuilding materialsChemicalsMediaEngineering and constructionTransportationReal estate2025e2019Difference(2025e less

59、2019)1.9x10.4x3.9x4.6x5.4x5.2x6.2x2.8x2.2x5.9x5.2x5.3x5.4x6.0 x4.0 x5.7x3.1x5.0 x5.1x4.3x4.7x7.3x-4.6-3.1-1.5-1.5-1.4-1.3-1.0-1.0-0.9-0.9-0.5-0.5-0.4-0.2-0.1-0.1-0.0+0.4+0.5+0.6+2.1+2.40 x2x4x6x8x10 x12x14x16x18x20 xOil and gasReal estateTransportationCapital goodsTransportation infrastructureUtilit

60、iesHealthcareEngineering and constructionMetals and miningBusiness and consumer servicesBuilding materialsMediaConsumer productsTechnologyRetail and restaurantsChemicalsAutosTelecommunication servicesHotels gaming and leisureHomebuilders and developersAerospace and defensePaper and packaging2025e201

61、9Difference(2025e less 2019)Industry Credit Outlook 2025 February 4,2025 10 anticipating that the new U.S.administration might be more favorably disposed to M&A.For sectors such as telecoms which are already subject to significant regulatory oversight globally,the direction of travel of government p

62、olicy remains critical.For instance,in Spain and the U.K.,recently approved consolidations with relatively light regulatory remedies may indicate a recalibration of competition concerns and a more open regulatory environment for M&A.Sectors where we expect M&A to pick up notably include:Building mat

63、erials:The building materials industry is heavily controlled by private investment and has seen significant M&A deals in recent years.We expect this trend to continue in 2025.Health care:We expect M&A to increase,even among the heavily private-equity owned,highly leveraged,speculative-grade service

64、providers.Media:Significant M&A is challenging and needed,although there are significant impediments to this in terms of regulation,capital availability,valuations,and cultural fits.We saw limited M&A activity in 2024 as companies focused primarily on balance sheet repair.Oil and gas:After extremely

65、 robust M&A activity last year,particularly in North America,the pace is slower but still relatively high.The main reason is to replace inventory and diversify production.Transportation infrastructure:Issuers will likely increase M&A,as outlooks bode well and interest rates decrease.Chart 12 Chart 1

66、3 M&A activity is gradually recovery Industrials,communications,and tech led 2024 M&A Global nonfinancial M&A by value and count Share of 2024 global nonfinancial M&A by industry Source:S&P Global Market Intelligence,S&P Global Ratings Source:S&P Global Market Intelligence,S&P Global Ratings Interes

67、t rate pressures have abated,with policy rates declining,low risk premia supporting refinancing,and interest coverage being rebuilt as EBITDA expands.While we expect to see median effective interest rates cash interest paid divided by total debt start to decline(see chart 14),they will nevertheless

68、remain structurally higher,and any resurgence of inflationary pressures or financial market volatility could bring a more challenging environment for weaker issuers.Interest coverage ratios are recovering from their 2023 lows,although median levels are still below where they were in 2019 for many sp

69、eculative grade industries(see charts 16 and 17).20,00025,00030,00035,00040,00045,00050,00055,00005001000150020002500300035004000Q120Q320Q121Q321Q122Q322Q123Q323Q124Q324Aggregate transaction value(USD Billion),4 qtr sumNumber of transactions,4 qtr sum RHSIndustrials15%Commn Svcs14%Tech14%Energy11%Ma

70、terials10%Health Care10%Consumer Discretionary8%Real Estate7%Utilities6%Consumer Staples5%Industry Credit Outlook 2025 February 4,2025 11 Chart 14 Chart 15 Effective interest rates have likely peaked and should start to decline,helping rebuild interest coverage for weaker issuers Global speculative-

71、grade nonfinancial corporates Median cash interest paid/total debt(%)by rating Global speculative-grade nonfinancial corporates Median EBITDA interest coverage for B rated issuers Source:S&P Global Ratings.Calculated as of Jan.29,2025.All units are USD.Global and regional aggregates exclude utility

72、and real estate entities.Chart 16 Chart 17 EBITDA interest coverage is recovering but still expected to remain below 2019 levels for many industries North American speculative-grade nonfinancial corporates Median EBITDA interest coverage by industry European speculative-grade nonfinancial corporates

73、 Median EBITDA interest coverage by industry Source:S&P Global Ratings.Calculated as of Jan.29,2025.Ranked by ascending order of estimated EBITDA interest coverage for 2025.AI is seen both as opportunity and threat.For some sectors,it has brought a welcome increase in demand.The technology industry

74、is on the cusp of a massive wave of spending on AI,with companies poised to spend over$230 billion in 2024,primarily from the largest technology companies globally.Data center growth has been exponential amid the digitization of the global economy,boosted by cloud migration and further propelled by

75、the broad adoption AI.Utilities,0.01.02.03.04.05.06.07.08.09.020202021202220232024e2025e2026ePre centBB+BBBB-B+BB-0.0 x0.5x1.0 x1.5x2.0 x2.5x3.0 x3.5x4.0 x4.5x5.0 x20202021202220232024e2025e2026eB+BB-8.3x5.0 x4.7x3.6x3.5x3.2x3.1x3.1x3.1x3.0 x2.8x2.7x2.7x2.6x2.6x2.5x2.5x2.4x2.3x2.2x2.0 x1.7x+2.8+0.5+

76、0.6-0.0+0.7-0.7-1.7-0.0-0.7-0.4+0.1-0.6-1.5-0.3-0.5-0.8-0.3+0.1-0.8-0.1-0.1-1.40 x1x2x3x4x5x6x7x8x9x 10 x 11x 12x 13x 14xOil and gasMetals and miningHomebuilders and developersUtilitiesRetail and restaurantsCapital goodsEngineering and constructionMidstream energyChemicalsHotels gaming and leisureAe

77、rospace and defenseAutosTransportationTelecommunication servicesBuilding materialsPaper and packagingConsumer productsBusiness and consumer servicesMediaTechnologyHealthcareReal estate2025e2019Difference(2025e less 2019)7.9x6.1x5.1x4.8x4.4x4.1x4.1x4.0 x3.4x3.4x3.2x3.0 x2.8x2.8x2.6x2.5x2.5x2.5x2.3x2.

78、1x2.1x1.7x+1.0-0.6-0.7+0.4+1.1-0.2+0.7-4.1-0.2+0.8-0.2-1.3-0.5-0.2-0.8-0.5-1.1-2.6-2.0-1.3-0.70 x1x2x3x4x5x6x7x8x9x 10 x 11x 12x 13x 14xOil and gasMetals and miningAutosEngineering and constructionUtilitiesTransportationRetail and restaurantsTransportation infrastructureAerospace and defenseTelecomm

79、unication servicesCapital goodsMediaHotels gaming and leisureHomebuilders and developersHealthcareConsumer productsBusiness and consumer servicesBuilding materialsTechnologyPaper and packagingChemicalsReal estate2025e2019Difference(2025e less 2019)Industry Credit Outlook 2025 February 4,2025 12 engi

80、neering and construction,capital goods,and technology issuers have benefitted from the spillover from data center buildouts,power generation,electricity distribution and transmission,and connectivity requirements.For the media sector,there are challenges as well as cost opportunities.AI is accelerat

81、ing the shrinking quality difference between certain professionally produced and user-generated content.How AI can be used to create content is still being determined and may be fraught with legal and regulatory risk.More broadly,credit risks lie mainly in the significant capex involved in AI,the ri

82、sk of business model disruption,and the potential for an AI winter if the current level of enthusiasm proves to be oversold.Longer term opportunities lie in cutting costs,enhancing productivity,and accelerating speed to market for products.Climate-risk related trends are similarly mixed.The growing

83、frequency of devastating physical events,including hurricanes,storms,and wildfires,is elevating the North American utility sectors credit risks,and long-term climate progress would mitigate this.There are,however,high costs linked with climate transition.Absent sufficient support from public bodies,

84、it can be difficult for companies and households to invest to comply with local decarbonization regulation.For example,climate transition risk is at the core of cement companies capital allocation.Cement companies assign an increasing share of their maintenance capex to improve plants thermal effici

85、ency and cut carbon dioxide emissions.Growing environmental requirements could also weigh on REITs balance sheets.European REITs are progressing toward their decarbonization targets for this decade,but longer-term goals remain challenging and will involve significant investments.Buildings are respon

86、sible for about 40%of energy use in the EU,which aims to fully decarbonize buildings by 2050.Related Research S&P Global Ratings Publishes Updated Regional Corporate Rating Component Score Reports,Jan.31,2025 Global Nonfinancial Corporate Medians History And Outlook 2025:A positive outlook for corpo

87、rate credit fundamentals,Dec.4,2024 Global Credit Outlook 2025 Promise And Peril,Dec.4,2024 Corporates:Can Monetary Easing Bring Enough Relief To Justify Current Market Optimism?,Dec.4,2024 Corporate Results Roundup Q3 2024:Ex-commodity EBITDA growth accelerates,but still driven by margins not reven

88、ues,Nov.25,2024 Industry Credit Outlook 2025 February 4,2025 13 Table 1 Corporate sector risk and opportunity map Sector Subsector/region Risk/opportunity 1 Risk/opportunity 2 Risk/opportunity 3 Aerospace and defense Commercial aerospace Boeing disruptions Airbus new models Tariffs U.S.defense Profi

89、tability New U.S.administration M&A European defense New U.S.administration Conflict and supply chains Financial policy Autos Tariffs Chinese economy recovers Regulatory pragmatism Building materials North America Interest rates and costs Tariffs and margins Financial policy EMEA Weak demand,higher

90、costs Financial policy Climate transition costs Latin America Trade policy and growth Physical climate risk Lack of CO2 regulation Asia-Pacific Chinas property market Cement carbon regulation Korean city property Capital goods Costs(tariffs,labor,rates)Maturity wall Investment cycle Chemicals Tariff

91、s and trade conflict U.S.port strikes Higher financing costs Consumer products Weak consumer spending AI and tech lower costs Physical climate risk Engineering and construction Materials costs and tariffs Skilled labor shortages China payment delays Health care Margin pressure M&A New U.S.administra

92、tion Homebuilders U.S.Labor supply Tariffs and material costs Higher home inventories EMEA Conflict and supply chains Government stimulus Environmental regulation Asia-Pacific Tariffs and China demand HK mortgage rates Indonesia tax cuts Latin America Volatile economies Brazilian regulations Access

93、to funding Hotels,gaming,leisure Gaming Economic headwinds Increased leverage Rapid European regulation Hotels and timeshare M&A and leverage Labor cost pressure Economic slowdown Cruise and recreation Slowing economy Rates higher for longer Tariffs Media Content Consolidating M&A AI is risk and opp

94、ortunity Distribution Streaming profitability Declining linear audience M&A Advertising Weak economy AI efficiencies Metals and mining Weaker profitability High capital requirements Energy transition Oil and gas Tariffs Refining margins weaken Financial policy relaxation Real estate U.S.REITs Rates

95、higher for longer Office recovery M&A increases leverage European REITs M&A and dividends Geopolitical risks Environmental regulation Asia-Pacific REITs Slower deleveraging Elevated funding costs Return-to-office mandates Latin America U.S.tariffs Reflation Reshoring Retail and restaurants Tariffs a

96、nd inflation Strong consumer spending Refinancing and defaults Technology Trade restrictions AI transformation Interest rate uncertainty Telecommunications Global M&A(if permitted)Competition risk Capex and investor returns North America Consolidation Fiber demand Starlink and Amazon EMEA Infrastruc

97、ture asset sales Intensified competition Consolidation Latin America Competition Currency risk M&A Asia-Pacific Economic uncertainty M&A 5G Spectrum purchases Transportation Airlines Fuel prices Cost inflation Weaker ticket prices Container shipping Red Sea disruption eases Tariffs Capex requirement

98、s Rail roads Trucking capacity reduces Coal production increases Tariffs Most prevalent themes Tariffs and trade tensions M&A and financial policy Rates and financing Source:S&P Global Ratings.Risks and opportunities have been simplified and standardized relative to the originals for cross-sectional

99、 clarity.No rank ordering is implied between the risks/opportunities.Industry Credit Outlook 2025 February 4,2025 14 Table 2 Infrastructure sector risk and opportunity map Sector Sub-sector/region Risk/opportunity 1 Risk/opportunity 2 Risk/opportunity 3 Midstream energy OPEC increases production Fas

100、ter growth of renewables Opposition to hydrocarbons Utilities APAC Grid instability Technology bottlenecks Volatile fuel cost EMEA Price volatility/event risks Political/regulatory risks Low-carbon project economics Latin America Higher energy prices Curtailment risks Sovereign rating limitations No

101、rth America competitive power Higher tariffs Partial repeal of IRA Ability to meet surging demand North America regulated power Rising wildfire risks Changes in tax legislation Low common equity issuance Transportation infrastructure Airports Lower traffic growth Geopolitical tensions Aggressive fin

102、ancial policies Ports Trade/geopolitical tensions Modernization Continued disruptions Roads Regulation risk in China Aggressive financial policies Affordability concerns Rail and Mass Transit APAC:weaker leverage profile Competition Source:S&P Global Ratings.Risks and opportunities have been simplif

103、ied and standardized relative to the originals for cross-sectional clarity.No rank ordering is implied between the risks/ January 14,2025 Industry Credit Outlook 2025 Contacts David Matthews London+44 20 7176 3611 david.matthews Ben Tsocanos New York+1 212 438 5014 ben.tsocanos Jarrett Bilous Toront

104、o+1 416 507 2593 jarrett.bilous Aerospace and Defense Manufacturing as fast as the supply chain will allow January 14,2025 This report does not constitute a rating action.Whats changed?Boeings setbacks delayed its aircraft production recovery and put significant pressure on its finances and ratings.

105、Many issuers are building as fast as their supply chain will permit them to.Soaring demand is still being weighed upon by persistent supply chain/production turbulence.Trump 2.0 brings uncertainty to the defense world.Trump might pursue a defense policy that leaves European countries having to fill

106、a military void.What are the key assumptions for 2025?Domestic and international flying hours will continue to hit record highs,bolstering already high demand for new aircraft and aftermarket services,except perhaps in APAC.Airframers boost build rates.Boeing ramps up 737 MAX production and deliveri

107、es,while Airbus increases production of its A320 models.Defense demand will remain elevated for some time as many governments realize that 20-30 years of peacetime has left their armed forces too small and antiquated.What are the key risks around the baseline?Delay in Boeings production recovery wou

108、ld hurt suppliers and airline customers and leave an opening for Airbus.Supply or labor constraints could hinder increased production,eroding profitability.Some problems are expensive to fix,and the next one is always around the corner.Boeing,for example,is still recovering from widespread quality p

109、roblems uncovered in the January 2024 blowout.15Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 Ratings Trends:Aerospace and Defense Chart 1 Chart 2 Ratings distribution Ratings distribution by region Chart 3 Chart 4 Ratings outlooks Ratings outlooks by region Chart 5 Chart 6 Rati

110、ngs outlook net bias Ratings net outlook bias by region Source:S&P Global Ratings.Ratings data measured at quarter-end.024681012AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCSDDAerospace&Defense024681012AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCSDDNorth AmericaEuropeAsia-PacificL

111、atin AmericaNegative12%WatchNeg4%Stable73%WatchPos1%Positive10%0%20%40%60%80%100%N.AmericaEuropeNegativeWatchNegStableWatchPosPositive-60-50-40-30-20-100102015 2016 2017 2018 2019 2020 2021 2022 2023 2024Aerospace&DefenseNet Outlook Bias(%)-80-60-40-20020402015 2016 2017 2018 2019 2020 2021 2022 202

112、3 2024N.AmericaEuropeNet Outlook Bias(%)16Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 Industry Outlook:Commercial Aerospace Ratings trends and outlook Ratings are largely stable and globally are balanced between positives and negatives for outlooks that are not stable.The posi

113、tive outlooks include aircraft component makers benefiting from strong demand for new aircraft and support for in-service planes.They also include companies taking advantage of strong cash flows to reduce debt,especially with higher interest rates making refinancing less attractive.The negative outl

114、ooks include aerospace suppliers dealing with the effects of manufacturing flaws,labor disruptions,supply chain inefficiencies,as well as aggressive financial policies.The larger number of negative outlooks in North America,compared with Europe,reflects the prevalence of suppliers to Boeing and fina

115、ncial sponsor-owned U.S.issuers,which typically have high debt levels and are very sensitive to rising interest rates.Main assumptions about 2025 and beyond Boeing aims to recover from quality control problems and a strike by its largest union.The company reached a contract agreement with its machin

116、ists on Nov.4th,ending a 53-day strike.The work stoppage came as Boeing was poised to raise production and deliveries of its 737 MAX aircraft from subdued levels where the company held them for most of the year.The company had been overhauling its MAX manufacturing process following a mid-air fusela

117、ge panel blowout in January.Ramp-up of MAX production has been pushed out more than a year because of it.We expect MAX deliveries of approximately 250 planes in 2024,down from around 500 before the January incident.The company is targeting 38 planes per month by mid-2025,which we view as key to gene

118、rating positive free cash flow.Output of widebody 787 aircraft,which was not directly affected by the overhaul and strike,is on track to average five planes per month.In addition to restarting MAX production,the company has a new CEO tackling senior management changes,cutting its workforce by 10%,re

119、turning the defense business to profitability,and potentially paring its portfolio.It is seeking FAA approval for two 737 MAX model variations and working to ensure its long-delayed 777X widebody will start deliveries in 2026.Boeing is also scheduled to close the acquisition of Spirit Aerosystems,ma

120、ker of fuselages for the MAX,in mid-2025.The original equipment manufacturer(OEM)sets the pace for component makers in its supply chain,and they are hesitant to outpace the OEMs until they demonstrate stability.The new U.S.administrations tariff plans may complicate Boeings efforts to deliver its re

121、maining inventory of planes built before the pandemic for Chinese airline customers,especially if China 1.New aircraft production remains below demand.Both Airbus and Boeing are sold out for years and will continue to ramp up production as best they can.Supply chain challenges are likely to persist

122、through 2025 and into 2026.2.Demand for air travel stays strong.Revenue passenger kilometers(RPKs)are likely to continue hitting record highs,fueling solid demand for aftermarket services.3.Global risks and regional conflicts motivate strong defense spending.Many manufacturers have both commercial a

123、erospace exposure and defense exposure,so will benefit from robust demand from both sides.17Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 retaliates.Tariffs on imports from Mexico and Canada would also make some components used in new planes significantly more expensive.Airbus p

124、roduces what the supply chain will allow,and our rated EMEA-based suppliers will continue to reap the upside.Following a flurry of deliveries in Q2 2024 and a record 123 deliveries in December,Airbus finished the year with 766 commercial aircraft deliveries-to 86 customers-in calendar 2024.This mean

125、s that the group almost met its target of 770 aircraft that it had set itself in June 2024(at the time revised down by 30 aircraft from 800 for the year,due to continued supply chain disruptions,particularly in engines,cabin,and equipment,and aerostructures).Airbus relies on thousands of suppliers f

126、or on-time delivery and,ultimately,revenue growth and cash generation.For large commercial aircraft engines,key suppliers are Pratt&Whitney(PW1500 G for the A220 and PW1000 GTF for the A320 family),Safrans and General Electrics CFM(LEAP-1A for the A320neo new engine option family),and Rolls-Royce(Tr

127、ent 7000 for the A330 and Trent XWB for the A350).We note that engine makers improved delays as 2024 progressed and this helped Airbus towards its delivery target for the year.Despite this,we expect that supply chain challenges will persist in 2025,which might weigh on Airbuss efforts to raise produ

128、ction rates.Airbus targets production rates of 75 A320s per month by 2027,14 A220s per month by 2026,and 12 A350s per month by 2028.Problems with new engine models have extended the reliance on older equipment.In 2023 RTX subsidiary Pratt&Whitney disclosed a flaw in its new PW1100 Geared Turbofan(GT

129、F)engines that required remediation,and we estimate it is only about a third of the way through the process of fixing it.GTF engines power a significant portion of Airbus A320 and A220 planes that are in high demand.RTX has had to compensate airline customers for the loss of use of grounded aircraft

130、 during the remediation process.The pace has been somewhat constrained by limited facility and labor capacity.GE Aerospaces new LEAP engine has also(albeit to a much lesser extent)faced durability issues that have limited time-on-wing.The company expects to fix these shortcomings with updated compon

131、ents that are currently being introduced.Engine makers also point to forged metal castings as a limiting factor to ramping up production,though P&W and GE are both reporting double-digit output growth.New aircraft engine model introductions typically result in losses for the engine makers early in e

132、quipment life cycle and long tail of solid profits while the engines are maintained.We now expect planes with the new-generation engines will displace installed engines more slowly than previously expected.And these delays will in turn delay the delivery of new planes,resulting in extended use of ol

133、der ones and driving demand for aftermarket services and parts.And maintaining in-service equipment has better margins than supplying OEM parts does.Rolls-Royce Plcs civil aerospace operating profit should continue growing,up to 18%in the first half of 2024(from 12.3%in the first half of 2023),with

134、higher contribution of aftermarket services,with higher margins on long-term service agreements and better business jet performance.The continued increasing engine flying hours support growing cash flow generation and higher maintenance,repair,and overhaul(MRO)activity.However,the group has experien

135、ced delays in shop visit servicing times,which impacted cash flow by around 150 million-200 million in 2024,and the effect could be greater in 2025 if supply chain challenges persist.Nonetheless,we expect Rolls-Royces credit quality to improve as its balance sheet continues to strengthen.Strong busi

136、ness jet sales to continue,with private buyers leading demand.New aircraft model introductions in 2024,including General Dynamicss Gulfstream G700 and Textrons Citation Ascend,spurred interest across segment classes.We expect demand for larger business jets with longer ranges to remain a key driver

137、of interest in new planes.Preference for advanced 18Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 technology and fuel-efficient aircraft reflects a return to pre-pandemic travel patterns for corporate and wealthy fliers,emphasizing the benefits of on-demand flights and unique po

138、int-to-point routes.Additionally,access to business jets is broadening,with fractional ownership and jet card programs gaining popularity.Healthy demand bodes well for suppliers.Supply chain bottlenecks,however,continue to challenge production rates and are expected to persist in the near term.As a

139、result,the slower delivery of new aircraft is likely to give a boost to MRO providers in the short term.Credit metrics and financial policy Credit measures should continue to improve for most commercial aerospace issuers.Favorable demand and improving OEM build-rates support revenue growth and margi

140、n expansion across the sector.Both major airframers face supply-chain constraints and labor inefficiencies that will likely persist to some extent,but we estimate higher average earnings and cash flow for civil aerospace companies.For higher-rated companies in that segment,we anticipate that financi

141、al policy will set the pace of financial measure improvement.Return of capital to shareholders through share repurchases will remain the primary use of free operating cash flow.Merger and acquisition(M&A)activity,while subdued of late in the commercial aerospace supply chain,may be more likely with

142、the change in regulatory orientation under a new administration.Credit measures for lower-rated companies are sensitive to modest earnings and cash flow growth and likely to benefit from higher build rates.Moderating interest rates should also favor issuers with high debt burdens and are sensitive t

143、o liquidity pressures.Key risks or opportunities around the baseline For Boeing,unforeseen quality control or component supply constraints could delay restart of the 737 MAX and other aircraft model production.Any unexpected challenges with the introduction of the A321LXR and A350F.The entry of any

144、new aircraft model to service is always important,but our base case is for a smooth take-off for these two Airbus models.Trump 2.0 tariffs and increased obstacles to trade.U.S.tariffs on China,could be met with retaliation,making Boeing planes more expensive in an important market.Tariffs on imports

145、 from Canada and Mexico would make certain components more expensive for the OEM.1.Further Boeing disruptions.These could delay the restart of the 737 MAX and other aircraft model production.2.Unexpected challenges in the A321LXR and A350F.Our base case is for a smooth take-off for these two new Air

146、bus models.3.Tariffs and increased obstacles to trade.U.S.tariffs could make planes more expensive.19Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 Industry Outlook:U.S.Defense Ratings trends and outlook Our ratings on U.S.defense companies should remain mostly stable amid contin

147、ued robust government spending.While real dollar outlays could decline slightly in 2025,overall spending remains high and far-reaching after years of material growth.Strong earnings and cash flow performance should continue,particularly for the larger,higher-rated issuers.However,these companies ten

148、d to prioritize shareholder returns as a use of discretionary cash flows,and we expect this will continue,thereby limiting improvements in credit measures and ratings.While smaller,lower-rated companies could face additional challenges if new programs are delayed,they could benefit from a decline in

149、 interest rates.Main assumptions about 2025 and beyond Defense spending could decline in real dollar terms but will remain strong.After significant growth in recent years,a flattening is likely,with a small increase in nominal spending potentially resulting in a small decrease in real dollar spendin

150、g.For example,the proposed 2025 U.S.defense budget of$850 million would be up 1%from last year.This amount is down slightly in real dollar terms after adjusting for inflation but is still an increase from where the budget stood a few years ago and signals that the appetite for defense spending remai

151、ns strong.Specific threats drive spending priorities.The proposed defense budget focuses on enhanced readiness and modernization efforts,space,missiles and missile defense,artificial intelligence research and development(R&D),and nuclear deterrence in response to recent conflicts in the Middle East

152、and Ukraine,as well as continued perceived threats from China.In terms of specific programs,funding is focused on Virginia-and Columbia-class submarines built by Huntington Ingalls and General Dynamics,and aircraft carriers and Arleigh Burke class destroyers built by Huntington Ingalls.Major aircraf

153、t programs including F-35 fighter made by Lockheed Martin,the B-21 strategic bomber made by Northrop Grumman,and unmanned aircraft systems are likely toremain well funded,though future block sizes may come under pressure.International salesgrowth is supported by allies commitments to increase spendi

154、ng in response to heightenedsecurity concerns.Foreign sales comprise less than 20%of the largest defense contractorsrevenue but generally contribute higher margins than domestic sales.Companies will emphasize shareholder returns.Cash flows are likely to remain high,especially for the larger firms,de

155、spite the variety of factors creating uncertainty.Large firms may perceive greater opportunities for M&A under the new administration but are likely to continue to prioritize share repurchases or dividends,limiting improvements to credit metrics.1.Defense spending will remain strong,though it could

156、decline in real dollar terms.We expect budgets will continue to support defense spending in the face of various threats.2.Near-peer threats will drive spending priorities.Conflicts in the Middle East and Ukraine and continued tensions with China underpin U.S.strategic and defense priorities.As such,

157、we expect limited material downside risk to defense spending in the U.S.3.Companies will emphasize shareholder returns.Cash flows are likely to remain high,especially for the larger firms,who are likely to prioritize share repurchases or dividends,limiting improvements to credit metrics.20Industry C

158、redit Outlook 2025:Aerospace and Defense January 14,2025 Credit metrics and financial policy While U.S.defense budget growth has flattened in recent years,spending remains robust and we expect most companies in the sector to generate ample free cash flow.Large strategic acquisitions that increase in

159、dustry consolidation are unlikely,though the change in administration could open the door somewhat after the Biden administrations active stance regarding maintaining competition.Prioritization of cash flow,whether for debt reduction or shareholder returns through dividends and share repurchases,wil

160、l drive the direction of credit ratios for larger U.S.defense companies.Smaller companies with higher debt burdens will focus on rebuilding financial strength as they face likely declining,but still high borrowing costs and upcoming debt maturities.Key risks or opportunities around the baseline Supp

161、ly chain and labor inefficiencies and fixed-price contracts pose risks to profitability.Fixed-price contracts were generally agreed to in a period of low inflation and higher labor productivity and do not accommodate current conditions.For example,Northrop Grumman took a sizable charge against its B

162、-21 program,and Huntington Ingalls reduced expectations for Virginia-class submarine profitability as a result of these pressures.We anticipate that performance will improve as companies invest in workforce efficiency and supply chain capacity and older contracts roll off and are replaced with agree

163、ments that reflect current conditions.The next defense budget.The industry is currently operating under a budget continuing resolution(CR)and the change in administration raises the likelihood that it will extend further,given the new administration will not take over until more than halfway through

164、 the current fiscal year and opt for a full-year CR and push to achieve its goals in the next years budget.The inability to pass the 2025 budget in a timely manner will create delays for new contract awards.In addition,the new administrations advisory Department of Government Efficiency(DOGE)creates

165、 uncertainty that may cause companies to delay investment decisions.It is not clear how much spending the administration can cut within the existing political and l legal framework,and on what timeline.At this stage,wholesale spending cuts seem unlikely,especially in the defense space.However,we see

166、 the risk that the procurement process might be affected with new awards potentially delayed as a result.This could push some spending into the future,creating cash flow volatility,particularly for smaller firms.1.Profitability risks.Supply chain and labor inefficiencies,among other things,could pre

167、ssure margins and cash flows,particularly on legacy fixed-price contracts.2.The new administrations investment priorities.Uncertainty regarding the new administrations spending priorities,timing,and DOGE add risk,particularly around the award of new contracts.3.M&A activity may increase.A more accom

168、modating approach under the new administration could make deals more likely to pass regulatory review.21Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 Industry Outlook:European Defense Ratings trends and outlook For many European defense manufacturers,the trends for 2025 will be

169、similar to those in 2024,but with added tailwinds.The wars between Russia and Ukraine and between Israel and its neighbors,coupled with uncertainty about the incoming Trump administrations approach to these conflicts and to the U.S.s role in NATO continue to sharpen political minds and drive rising

170、defense budgets in Europe.We note reports that European NATO members are currently discussing a potential 3%target(of defense spending versus GDP)and also the potential formation of a joint project fund of EUR500 billion or more for shared defense projects.Backlogs,revenues,and EBITDA continue to ri

171、se for our rated issuers,and robust cash flows are almost a given through 2025.Our rated issuers will continue to benefit from solid industry prospects over the medium to long term,with high demand for their products and services.We expect few rating actions in 2025 as issuers will maintain strong b

172、alance sheets despite tolerance for opportunistic M&A and share buybacks.Main assumptions about 2025 and beyond European NATO members defense budgets will increase and defense expenditure as a percentage of national GDP will continue rising for many members.The Russia-Ukraine and Israel-Hamas wars h

173、ave added further momentum to many European governments appetite for such spending.NATOs European members are reportedly discussing a 3%target(of defense spending to GDP).The existing target is 2%and we expect 23 of NATOs 32 members to meet that target in 2024.However,several European members contin

174、ue to lag and some face a challenge in hiking their defense spending at such a rate,given the state of their economies and existing budget pressures.Continued benefit from soaring demand and uncertainties around Trump.European defense manufacturers,who tend to be more globally oriented than U.S.peer

175、s,are winning large contracts and several of our issuers have revised up their financial guidance(e.g.BAE Systems,Babcock,Israel Aerospace,Leonardo,Rafael,SAAB,and Thales).We also see benefits for Rolls-Royce and Safran.The immediate need for battlefield equipmentradar,communications,and munitionsha

176、s resulted in large spikes in demand for certain products and services for some issuers.And many of our rated issuers,especially the primes,are well diversified,so were the incoming Trump 1.Defensive urgency continues to fuel strong operating performance.Demand for some battlefield products and serv

177、ices remains at a record high,and our issuers have been winning some very large orders,specifically in the air defense segment.2.Rated issuers seem well placed for the next Trump administration.Many of our rated issuers,especially the primes,are well diversified with good exposure to the U.S.defense

178、 industry.Were Trump to step back from NATO,our issuers are also well placed to capture higher demand from European governments were they to hike spending to fill the void.3.Demand will remain focused on short term battlefield needs.We expect any issuers with exposure to munitions,radar,communicatio

179、n equipment and air defense technologies will benefit from current the geopolitical climate.22Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 administration to step back from NATO,our issuers would be well placed to capture higher demand from European governments to fill the void.

180、Defense contracts tend to be long term and so are likely to provide support for revenues and profitability for many years to come.Any previously anticipated pressure on defense budgets due to post-pandemic bean-counting has abated.Credit metrics and financial policy Pure-play defense issuers should

181、continue to experience good backlog,revenue,and cash flow visibility,with stable credit metrics.Gradually improving credit metrics will likely be at least partly offset by increased M&A,dividends,and share buybacks,particularly among large defense contractors.Smaller,weaker contractors will continue

182、 to focus on rebuilding financial strength,although many are owned by private equity,which tends to emphasize immediate returns.Key risks or opportunities around the baseline The Trump administration takes an unexpected approach to existing conflicts or alliances.Following several years of stable de

183、fense policy,the U.S.could change tack once Trump takes office,ultimately changing course toward certain geographies,platforms,and contracts.However,in our view many rated defense issuersthe primes especiallyare well diversified in their exposure to both the U.S.and Europe,meaning they should be abl

184、e to capture new/changing demand regardless of political developments.Conflicts escalating/spilling over and impacting production.Especially for our rated issuers based in Israel,escalating conflicts or the spilling over of wars to pull countries like Iran into an all-out confrontation could mean so

185、me production facilities having a heightened chance of being damaged.However,this is not currently in our base case.Adventurous financial policies.Some investment-grade issuers that are already paying for dividends and share buybacks could venture into opportunistic M&A.However,we dont think opportu

186、nistic M&A or shifts in financial policy will lead to material ratings downside,as many players have healthy balance sheets and cash to deploy.Instead,any downside might come from financial underperformance or operational challenges.1.Trump takes an unexpected approach to existing conflicts or allia

187、nces.Trump has promised changes in course toward certain geographies.This could also involve platforms and contracts.2.Conflicts escalating/spilling over and impacting production.Escalating conflicts or the spilling over of wars to pull countries like Iran into an all-out confrontation could mean so

188、me production facilities having more chance of being damaged.This is especially germane for rated issuers based in Israel.3.Adventurous financial policies.Investment-grade issuers that already pay for dividends and share buybacks could venture into opportunistic M&A.23Industry Credit Outlook 2025:Ae

189、rospace and Defense January 14,2025 Related Research Boeing Co.Ratings Affirmed On Greater-Than-Expected Equity Issuance;Remains OnCreditWatch,Nov 1,2024Thales,Oct.10,2024End Of Boeing Dispute Is Credit Neutral For Embraer,Sept.16,2024Aerospace And Defense Company Thales Affirmed At A-On Solid Opera

190、ting Performance;Outlook Stable,Aug.30,2024Leonardo SpA Outlook Revised To Positive On Deleveraging Prospects And BusinessMomentum;BBB-/A-3 Ratings Affirmed,Aug.16,2024Airbus Can Accommodate Announced Operating Setbacks,June 26,2024Aernnovas Proposed Upsize And Extension Of Its Term Loan B Is Levera

191、ge Neutral,June 11,2024 24Industry Credit Outlook 2025:Aerospace and Defense January 14,2025 Industry Forecasts:Aerospace and Defense Chart 7 Chart 8 Revenue growth(local currency)EBITDA margin(adjusted)Chart 9 Chart 10 Debt/EBITDA(median,adjusted)FFO/Debt(median,adjusted)Source:S&P Global Ratings.f

192、=forecast.Revenue growth shows local currency growth weighted by prior-year common-currency revenue share.All other figures are converted into U.S.dollars using historic exchange rates.Forecasts are converted at the last financial year-end spot rate.FFOFunds from operations.-2%0%2%4%6%8%10%12%14%202

193、1202220232024f2025f2026fGlobalN.AmericaEurope0%2%4%6%8%10%12%14%16%2021202220232024f2025f2026fGlobalN.AmericaEurope0.0 x1.0 x2.0 x3.0 x4.0 x5.0 x6.0 x2021202220232024f2025f2026fGlobalN.AmericaEurope0%10%20%30%40%50%60%2021202220232024f2025f2026fGlobalN.AmericaEurope25Industry Credit Outlook 2025:Aer

194、ospace and Defense January 14,2025 Cash,Debt,And Returns:Aerospace and Defense Chart 11 Chart 12 Cash flow and primary uses Return on capital employed Chart 13 Chart 14 Fixed-versus variable-rate exposure Long-term debt term structure Chart 15 Chart 16 Cash and equivalents/Total assets Total debt/To

195、tal assets Source:S&P Capital IQ,S&P Global Ratings calculations.Most recent(2024)figures use the last 12 months data.-80-60-40-2002040608010012020092011201320152017201920212023$BnCapexDividendsNet AcquisitionsShare BuybacksOperating CF01234567820092011201320152017201920212023Global Aerospace&Defens

196、e-Return On Capital(%)0%10%20%30%40%50%60%70%80%90%100%2009 201120132015201720192021 2023Variable Rate Debt(%of Identifiable Total)Fixed Rate Debt(%of Identifiable Total)050100150200010020030040050060020092011201320152017201920212023LT Debt Due 1 YrLT Debt Due 2 YrLT Debt Due 3 YrLT Debt Due 4 YrLT

197、Debt Due 5 YrLT Debt Due 5+YrVal.Due In 1 Yr RHS$Bn0246810121420092011201320152017201920212023Global Aerospace&Defense-Cash&Equivalents/Total Assets(%)05101520253035404520092011201320152017201920212023Global Aerospace&Defense-Total Debt/Total Assets(%) January 14,2025 Industry Credit Outlook 2025 Co

198、ntacts Vittoria Ferraris Milan+39 02 72 111 207 vittoria.ferraris Nishit Madlani New York+1 212 438 4070 nishit.madlani Claire Yuan Hong Kong+852 2533 3542 claire.yuan Lukas Paul Frankfurt+49 693 399 9132lukas.paul Marta Bevilacqua Milan+39 02 72 111 20 marta.bevilacqua Autos Cloudy skies loom over

199、the auto industry January 14,2025 This report does not constitute a rating action Whats changed?Foreign carmakers are losing market share in China more quickly,while suppliers face pressure to diversify with domestic OEMs,which may reduce returns as they compete with local leaders.Trumps second term

200、 as U.S.president revives fears of new trade tariffs on imported vehicles from Europe,Mexico,and Canada,complicating the challenging market for OEMs and suppliers.Europes slowing EV adoption raises the risk of weaker margins for automakers due to uncertainty about government support for the transiti

201、on through incentive schemes.What are the key assumptions for 2025?Global demand for light vehicles remains stable,although market shares are shifting to Chinese original equipment manufacturers(OEMs).Pricing is more resilient than expected,helped by production discipline,but will likely weaken in t

202、he U.S.and Europe due to a very competitive market and price-sensitive consumers.Supplier ratings will be less resilient than OEMs since ongoing restructuring has not significantly improved deleveraging or profitability.What are the key risks around the baseline?Tariffs on U.S.imports of light vehic

203、les and parts would require price adjustments,changes to product strategy,and selective relocation,likely negatively affecting profitability and cash flow.A stronger-than-expected economic slowdown fueled by low consumer confidence in the U.S.and Europe,decelerating growth in China and the risk of O

204、EMs overproducing relative to demand.Delaying 2025 regulatory targets in Europe would ease pressure on OEMs to push electric vehicles(EVs),helping to stabilize prices and lower the risk of fines at least temporarily.27Industry Credit Outlook 2025:Autos January 14,2025 Ratings Trends:Autos Chart 1 Ch

205、art 2 Ratings distribution Ratings distribution by region Chart 3 Chart 4 Ratings outlooks Ratings outlooks by region Chart 5 Chart 6 Ratings outlook net bias Ratings net outlook bias by region Source:S&P Global Ratings.Ratings data measured at quarter-end.024681012141618AAAAA+AAAA-A+AA-BBB+BBBBBB-B

206、B+BBBB-B+BB-CCC+CCCCCC-CCCSDDAutos OEMAutos Suppliers024681012141618AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCSDDNorth AmericaEuropeAsia-PacificLatin AmericaNegative17%WatchNeg2%Stable73%Positive8%0%20%40%60%80%100%APACLatAmN.AmericaEuropeNegativeWatchNegStableWatchPosPositive-100-80-60-

207、40-200202015 2016 2017 2018 2019 2020 2021 2022 2023 2024AutosAuto OEMAuto SuppliersNet Outlook Bias(%)-100-80-60-40-2002040602015 2016 2017 2018 2019 2020 2021 2022 2023 2024N.AmericaEuropeAsia-PacificLatin AmericaNet Outlook Bias(%)28Industry Credit Outlook 2025:Autos January 14,2025 Industry Outl

208、ook Ratings trends and outlook A downside rating risk is emerging in the auto industry,primarily affecting suppliers,since the sector faces a profound transformation in the competitive landscape coupled with low volume growth.For OEMs,volume,pricing,and mix will play a less supportive role for earni

209、ngs compared to previous years.We identify three main risks for 2025:Chinese OEMs aggressive domestic and international expansion,the high likelihood of new import trade tariffs into the U.S.,and tightening regulation in Europe,and further down the road,in China.We deem Chinese OEMs aggressive expan

210、sion to be a game changer for the industry.Chinas weak economy relative to its industrial overcapacity is set to further intensify competition in the country and in international markets targeted for Chinese vehicle exports.This raises geopolitical tensions that have already triggered protectionist

211、reactions.Protectionism distorts markets and at best delays necessary adjustments by foreign automakers to narrow competitive gaps,but it does not change the fundamental competitive advantage of Chinese OEMs and suppliers,which is their significantly lower cost base.In the global race to lower total

212、 costs,auto suppliers will have to support OEMs in realigning production capacity to address market share losses to emerging Chinese manufactures,as well as in adjusting to the slower global transition to EVs.Unless there is a wave of market consolidation,residual headroom for cost reductions and de

213、leveraging seems limited after the significant adjustments made post-pandemic,as well as the low likelihood of further compensation from OEMs.Even the Chinese EV champion BYD is seeking to negotiate with auto suppliers for an annual 10%price reduction,highlighting the challenge suppliers face to imp

214、rove profitability.The momentum in negative outlooks for our global supplier portfolio in 2024 has risen to slightly below 20%from 10%,reflecting the accelerated loss of rating headroom for these issuers.Weak market conditions,upcoming tougher carbon dioxide regulatory limits in Europe starting in 2

215、025,and tighter fuel efficiency standards in China likely from 2026,will constrain light vehicle OEMs options to manage the powertrain mix as they try to maintain profitability in a slower-than-expected EV adoption scenario.The prolonged use of internal combustion engine(ICE)vehicles will come with

216、costs.In Europe,we expect the impact of lower EV margins will fully affect profits and cash flows in 2025.The positive credit trends for OEMs such as Renault,GM,Hyundai,and Tesla over 2024 will be tested against these risks,making upward rating transitions less common.For all other light vehicle aut

217、omakers,maintaining their ratings will depend on their capacity to reduce costs,manage regulatory risks,and stabilize their market shares(or eventually tie up with a better rated competitor).Our rated portfolio of truck companies shows overall rating stability,even with more negative volume forecast

218、s compared to light vehicles,especially in Europe.Rating headroom remains satisfactory thanks to lower exposure to Chinese companies in key profit areas,especially in Europe and North America,and because the transition toward lower-emission vehicles is still in its early stages.Currently,the non-ICE

219、 share represents less than 1%of units sold.29Industry Credit Outlook 2025:Autos January 14,2025 Main assumptions about 2025 and beyond Light vehicles Low volume growth and weaker pricing.Most global OEMs will struggle to expand their profit margins over the next few years since the combination of l

220、ow volume growth and weaker pricing will fail to support the earnings momentum observed over 2021-2023.We anticipate very moderate growth in light vehicle demand over the next two years(see table 1).We expect OEMs to maintain tight production levels and adjust capacity downward now that the prospect

221、 of volume growth is moving further away,in order to limit pricing downside and reduce fixed costs.We think the product mix could negatively impact revenues and earnings because consumers are more interested in affordable options than in recent years,as well as due to the higher share of EVs.Meanwhi

222、le,new OEMs will challenge legacy producers previously successful value-over-volume strategies,likely leading to declining pricing power,which may manifest as either higher discounts or lower retail prices.This will increase the need for traditional OEMs to support profitability through ongoing,and

223、perhaps additional,cost reductions.Table 1 Global light vehicle(LV)forecast(as of October 2024)Actual New projections(as of October 2024)Previous projections(as of April 2024)2023 2023 2024e 2025e 2026e 2022e 2023e 2024e Mil.units YOY%YOY%YOY%YOY%YOY%YOY%YOY%Global LV sales 86.7 9.8 1-22-31-21-32-41

224、-3China(mainland)25.5 5.6 0-20-21-32-42-31-3U.S.15.6 12.4(1)-0 1-21-2(1)-0 1-20-1Europe 17.9 19.5 0-21-31-20-21-30-2South Korea 1.7 3.3(4)-(2)0-20 0-20-10 Japan 4.7 13.7(4)-(2)1-30(4)-(2)0-20 Rest of the world 21.2 5.0 4-64-61-24-64-64-Global LV production 90.5 9.9(3)-(1)0-10-10-10-20-2eEstimate.YOY

225、Year-on-year.All percentages are year-on-year changes.Sources:Actuals from S&P Global Mobility,forecasts by S&P Global Ratings.Foreign automakers are losing market share in China at an accelerated pace.The decline in foreign OEMs market share in China since the pandemic was initially a phenomenon ma

226、inly limited to the volume market(see chart 7).However,Chinese OEMs have also been expanding into the premium segment,and this trend gained momentum in 2024(see chart 8).Emerging 1.Low volumes,low pricing power.Global light vehicle sales growth will slow to 1%-3%per year in 2024-2026.Increased OEM i

227、ncentives and lower dealer prices will reduce margins.There will also be weak demand for heavy-duty trucks,but the rating headroom can absorb it.2.Market share erosion to Chinese automakers.Intense competition rages on in the Chinese volume segment and is rapidly extending into the premium segment,p

228、osing displacement risks for traditional manufacturers and forcing suppliers to restructure operations in the region.3.Moderate EV adoption growth globally.EV losses and regulatory fines will offset the advantages of continued ICE use.30Industry Credit Outlook 2025:Autos January 14,2025 Chinese OEMs

229、 will challenge traditional premium brands with vehicles that compete on technology,design,and price.Chart 7 Chart 8 Foreign brands ceded market share in Chinas volume segments as well as in premium segments Change in volume market share in China(YTD 2024 vs.2019)Change in premium market share in Ch

230、ina(YTD 2024 vs.2019)YTDJan.-Sept.2024.Sources:S&P Global Mobility,S&P Global Ratings.YTDJan.-Sept.2024.Sources:S&P Global Mobility,S&P Global Ratings.In the premium market,foreign OEMs often lag their Chinese competitors in terms of technology.Despite significant investment in product innovation,Eu

231、ropean and Japanese brands have so far failed to persuade Chinese consumers with respect to infotainment and autonomous driving assistant features.That said,in the high-end premium spacei.e.,vehicles priced over Renminbi(RMB)1 milliona lack of confidence in electric vehicle technology is discouragin

232、g battery electric vehicle(BEV)adoption in favor of ICEs.However,the captive market for ICE-powered vehicles is declining in China and may shrink further with the new corporate average fuel consumption regulations starting in 2026.We deem the loss of market share a key risk for foreign OEMs in China

233、 in the coming years.In the premium segment,so far most of this market share loss is explained by the segments growth as a share of the total market,which has been captured by local OEMs.While foreign OEMs sales have been more stable in absolute terms,this may change in the context of an expanding a

234、nd very competitive premium offering from local peers.We expect foreign OEMs to limit further significant share erosion in the medium term given their ongoing investments in technology,platforms,and partnerships(mostly through joint-ventures),and likely changes in strategy related to product segment

235、s,pricing and exports.If foreign OEMs succeed in bridging the cost competitiveness gap in China,they will be better equipped to counter Chinese OEMs aggressive expansion in Europe,Asia-Pacific(APAC)excluding China,Africa,and South America(see chart 9).-8-404812VWGMNissanHondaHyundaiFordToyotaBYDCher

236、yTeslaChanganLi AutoGeelyHuaweiFAWChange in market share(percentage points)-12-8-404812Mercedes-BenzAudiBMWLexusOthersPorscheVolvoLand RoverMiniDenzaNIOZeekrAitoLITeslaChange in market share(percentage points)31Industry Credit Outlook 2025:Autos January 14,2025 Chart 9 Chinas light vehicle exports h

237、ave nearly tripled in the last three years Chinas auto exports by destination(2019 YTD 2024)*YTD-2024Jan.-Sept.2024.Total exports for YTD-2024 has been annualized.Sources:China Passenger Car Association,China Customs,S&P Global Ratings.A less predictable EV transition.The transition to electrified m

238、obility is highly likely,but the process is exposed to political influence.China is leading the shift away from traditional gasoline and diesel engines,with the share of EVs(BEVs+PHEVs)exceeding 40%of new vehicle sales in the 12 months to October 2024.We think this transition will keep momentum sinc

239、e the government plans to tighten fuel consumption thresholds starting in 2026,further discouraging sales of traditional engines.In Europe,low visibility on a stable incentive scheme,coupled with unclear total cost of ownership advantages,has slowed EV adoption in 2024(see chart 10).Political uncert

240、ainty in two of Europes largest auto marketsGermany and Francedoes not favor any bold political initiatives supporting EV transition in 2025.This leaves OEMs in Europe exposed to margin dilution because they will have to sell EVs at low margins,purchase carbon dioxide credits,and face regulatory fin

241、es next year,or any combination of these.The newly appointed European Commission will need to assess whether regulatory ambitions should be realigned to accommodate a hesitant market.The consensus is not in favor of postponing near-term company-specific carbon dioxide limits,but instead of mitigatin

242、g regulatory penalties,which represent a burden on already strained 2025 earnings forecasts.This is,however,not included in our base case for 2025.To meet the carbon dioxide emissions targets for 2025,approximately 20%-22%of vehicles sold in the overall market would need to be EVs.As of October 2024

243、,EVs represented a 20.2%market share,down from 21.6%in the previous year(source:European Automobile Manufacturers Association;ACEA).The combination of pushing margin-dilutive EVs into the market,along with the pooling costs among car manufacturers currently weighs on the earnings forecasts of most t

244、raditional automakers with sizeable operations in the EU.Furthermore,additional costs may arise from adjusting investments in new battery technology and managing contracted battery volumes.Even if there is a possibility of reduced regulatory fines in the short term,we do not expect major changes in

245、the level of EV penetration in Europe by the end of this decade.0246810020406080100202120222023YTD 2024*(Mil.units)(%)Middle EastAsiaRussiaEurope(excl.Russia)South AmericaAfricaNorth AmericaOceaniaOthersTotal exports(rightscale)32Industry Credit Outlook 2025:Autos January 14,2025 Chart 10 EV penetra

246、tion is pausing in Europe and the U.S.,while still rising in China EV penetration rate and sales growth rate(%)LTMLast 12 months.Source:S&P Global Ratings.The outlook for EV demand in the U.S.could face some downside pressure during Donald Trumps second presidential term.This will depend on the timi

247、ng and magnitude of changes to consumer and production tax credits under the Inflation Reduction Act,as well as investments in charging infrastructure under the Bipartisan Infrastructure Law.We expect significant competitive pressure for all automakers in 2025 and 2026.Following a slowdown in market

248、 share gains for EVs and rising inventories for several models,we think the next wave of buyers will be more price-sensitive and depend on significant battery range improvements,charging infrastructure,and technology.This is evident from the 7%year-over-year growth for EVs in 2024,which is much slow

249、er compared to a 37%growth in hybrids.Therefore,any removal of tax subsidies or charging infrastructure will skew estimates toward the lower end of the range in our base case(see table 2)and take longer to close the U.S.EV market share gap with Europe and China.For now,our global electrification sce

250、nario remains unchanged.Table 2 Global electrification scenario Share of BEVs+PHEVs as a percentage of total sales 2021 2022 2023 2024e 2025e 2026e 2030e*Europe 10 18%22.4%22.2%20%20%-25%20%-25%55-60%China(Mainland)14.0%27.0%32.9%Approx.40%44%-48%48%-52%70%-75%U.S.4.50%7.1%9.2%10%-11%13%-16%16%-22%3

251、0%-35%Global 8.3%13.0%16.5%18%-19%19%-20%20%-22%45%-50%Europe 10Germany,France,U.K.,Italy,Spain,Belgium,Austria,Netherlands,Sweden,and Norway.eEstimate.BEVsBattery electric vehicles.PHEVsPlug-in hybrid electric vehicle.*2030 production projections by S&P Global Mobility.Source:2019-2023 EV Volumes,2

252、025 estimates by S&P Global Ratings.33Industry Credit Outlook 2025:Autos January 14,2025 Heavy duty commercial vehicles We forecast that global sales of heavy-duty trucks(HDTs)will increase by low single digits to about 1.95 million units in 2025,up from 1.93 million units expected in 2024(see table

253、 3).In Europe,the market continues to normalize but with a declining trend,recovering moderately in North America and APAC.Supply chain issues and widespread component shortages have eased further in 2024,but intensifying U.S.-China trade tensions,and the extent of President-elect Trumps proposed tr

254、ade tariffs could lead to a deterioration over 2025-2026,impacting both units sold and profit margins.In Europe,we expect up to a 5%decline owing to weak macroeconomic conditions,political uncertainty in its largest markets(Germany and France),and little hope that the neighboring Russia-Ukraine and

255、Middle East conflicts will de-escalate.For further details,see“2025 Global Outlook For Heavy-Duty Trucks Isnt Rosy,”published Dec.11,2024.Table 3 HDT growth forecast unit sales(%)2019 2020 2021 2022 2023 2024e 2025e Units sold in 2023 EU27+3 (0.1)(28.7)20.5 6 15.5(15.0)-(10.0)(5.0)-0.0 350,213 APAC

256、0.3 18.1 (2)(48.2)19.9(7.5)-(2.5)0.0-5.0 1,091,549 North America 7.3 (25.1)13.4 7.8 7.8(15.0)-(10.0)0.0-5.0 295,385 South America 18.4 (9.4)49 (0.5)(15.7)7.5-12.5 0.0-5.0 116,419 Total 1.8 3.5 5.1 (31.4)16.3(10.0)-(5.0)0.0-5.0 2,074,678 HDTHeavy-duty truck.eEstimate.Sources:S&P Global Mobility,S&P G

257、lobal Ratings.Credit metrics and financial policy Light vehicles Over the next two years,we expect moderate revenue growth for OEMs in line with the weak momentum of light vehicle sales and increasing pricing pressure.Cost reduction will remain crucial to accommodate headwinds generated by trade ten

258、sions,inflation,regulatory commitments,intense competition in China and other markets,and expenses linked to new model launches.In addition,the widespread need to reduce idle capacity to cut fixed costs will likely add to ongoing restructuring measures that will weigh on margins and cash flows.In a

259、very competitive market,investmentssuch as capitalized research and development(R&D)and capital expenditure(capex)may offer little flexibility to improve free cash flow generation.Slower adoption of EVs will not provide significant support because the benefits of longer lifespans for ICE worldwide m

260、ay not sufficiently balance decreasing margins on EV sales.Given that most OEMs have strong balance sheets,they will likely maintain financial policies that benefit shareholders to support equity valuations.With sales and pricing facing challenges,some OEMs might lower their underwriting standards a

261、t their proprietary captive finance businesses to compete,which could increase credit risk.Auto suppliers will face increasing pressure from OEMs to share their cost reduction efforts in the event demand remains flat.Volume shortfall could have been somewhat mitigated by the anticipated rise in prod

262、uct content and value for suppliers;however,this is likely to be undermined by the slower EV transition and more cost-conscious consumers.These factors will make it harder for suppliers to deleverage through EBITDA growth,leaving them with limited options,such as selling assets,tightening financial

263、policies,and cutting capex spending.34Industry Credit Outlook 2025:Autos January 14,2025 Heavy duty commercial vehicles We publicly rate four truck OEMs that primarily operate in Europe,the U.S.,and South America.For 2025,we anticipate overall muted revenue growth and margins in line with 2024 level

264、s.Capex will remain sustained as truck makers prepare for the energy transition that may now take longer than expected.Tariffs represent a short-term risk that could lead to lower demand and increased supply chain issues.However,most of the companies we rate have strong balance sheets,which could he

265、lp sustain less favorable free operating cash flow generation in their industrial businesses.We also anticipate the loss ratio for captive finance businesses could increase over 2024-2025 as logistic companies struggle with their cost base.Key risks or opportunities around the baseline Tariffs on im

266、ports of vehicles and parts into the US.The debate surrounding tariffs on the import value of parts and finished vehicles into the U.S.is a focal point in the global auto industry.To assess the maximum EBITDA at risk for OEMs,we developed a scenario analysis based on assumptions regarding tariff lev

267、els and the potentially affected sourcing area(see chart 11 and“Auto Industry Buckles Up for Trumps Proposed Tariffs on Car Imports,”published Nov.29,2024).European premium carmakers Volvo Car and Jaguar-Land Rover are particularly exposed to tariffs on European imports,whereas General Motors and St

268、ellantis would face the greatest risk in case of tariffs on imports from Mexico and Canada.Toyota and Hyundai-Kia have low exposure if no additional duties are applied to imports from Japan and Korea.1.New tariffs on U.S.imports of vehicles and parts.The risk of tariffs is high,but their impact rema

269、ins uncertain and depends on tariff levels,whether(and which)parts are included,and sourcing locations.Thus,specific tariff scenarios are not included in our issuers 2025 base cases but are noted as potential additional headwinds.Mitigation strategies will differ among OEMs,and should be evaluated i

270、ndividually.2.The recovery of the Chinese economy could benefit the auto industry.The hypercompetitive environment is magnified by a low-growth economy and weak consumer confidence,such that an earlier-than-expected recovery(2026-2027)could offer some relief for sales and pricing.3.Regulatory pragma

271、tism in Europe could create opportunities.Near-term risks involve selling EVs at low margins,and costs for credit purchases,and penalties for not meeting 2025 carbon dioxide targets.If the new European Commission eases these risks,such as averaging fleet emissions over a longer period,OEMs with sign

272、ificant operations in Europe would see this source of earnings risk partly reduced.35Industry Credit Outlook 2025:Autos January 14,2025 Chart 11 Note:Volumes represent the October 2024 forecast by S&P Global Mobility.MSRPs are from October 2024.GMGeneral Motors.JLRJaguar Land Rover.LVLight vehicle.M

273、ercedesMercedes-Benz.MSRPManufacturer Suggested Retail Price.Sources:S&P Global Ratings,S&P Global Mobility.The heavy-duty truck market is typically less exposed to exports from Europe to the U.S.This is due to its more regional production.At the same time,the threat of tariffs imposed by President-

274、elect Donald Trumps administration could challenge the profit margins of truck OEMs that rely on Mexican exports for U.S.domestic sales.According to S&P Global Mobility data,U.S.production accounted for about 55%of the total heavy-duty unit truck sales in the U.S.in 2023.Demand is primarily met by i

275、mports from Mexico,which represented about 98%of truck imports 36Industry Credit Outlook 2025:Autos January 14,2025 in the U.S.in 2023.We understand global truck OEMs have used Mexico as a production hub to varying degrees.S&P Global Mobility data indicates that the companies most exposed to Mexican

276、 production for export to the U.S.are Daimler Truck,which represents about 70%of heavy-duty truck exports from Mexico to the U.S.(slightly more than 80,000 units),followed by Traton at about 30%,(slightly more than 34,000 units).Under a scenario of 25%tariffs on imports from Mexico,we anticipate the

277、se companies profit margins could be challenged,particularly because it will be difficult to reallocate the production elsewhere in a timely manner.The light vehicle market in China could experience a revival.A marked recovery of the Chinese auto market is not in our base case for 2025 or 2026 due t

278、o persistently weak consumer sentiment(despite an improvement observed towards the end of 2024).The prolonged property market downturn has negatively weighed on consumer confidence and dampened spending on non-essential high-cost items.The governments attempt to revive the market through a trade-in

279、program stimulated passenger vehicle retail sales in the fourth quarter,potentially pulling forward demand for 2025.However,a more consistent intervention next year should not be excluded.Our economists have already factored in a lift in U.S.tariffs on Chinese imports to 25%from the second quarter o

280、f 2025 onwards(from about 14%),which would hit the Chinese economy.To counter challenging macroeconomic conditions,further stimulus seems inevitable,though its magnitude remains uncertain.For the auto sector,in addition to extending the trade-in policy,some industry participants are advocating for a

281、 cut in purchase tax(10%for ICE vehicles),which has historically been the most effective measure to support auto purchases.If successful,this could create stronger market momentum and potentially alleviate pressure on volume and profitability.That said,we remain cautious about the road ahead for aut

282、o OEMs.While stimulus policies could promote auto sales,the market is highly competitive,with continuous new model and brand launches.Cost leaders seeking market share may prolong the price war,especially if they can pass cost pressures onto suppliers.Market followers will need to adapt or risk losi

283、ng volume.This also applies to premium OEMs,particularly in the entry-level premium segment.The rating headroom for rated auto makers remains divergent but has generally decreased.For Geely entities,despite strong volume growth in 2024 due to improved product offerings,margin recovery could be compl

284、icated by the EV transition and trade tariffs.For latecomers to electrification,such as Beijing Automotive and China FAW,competitive pressures are increasing because of the lack of competitive EV models.The success of their EV strategy will determine their market position and rating trajectory in th

285、e next two to three years.Regulatory pragmatism in Europe could ease earnings pressure for affected OEMs.Manufacturers are integrating their regulatory commitments in Europe into their planning for 2025.This includes planning their mix of models and engine typesgasoline,hybrids,and EVsas well as twe

286、aking pricing,including potentially raising prices for ICE-powered vehicles,and preparing to buy credits from other manufacturers to meet company-specific targets or pay penalties.Meanwhile,the European Peoples Party is starting to acknowledge the challenges automakers face in the EU,which extend be

287、yond light vehicles to include trucks and buses.The regulations mandate a 15%reduction in the average carbon dioxide emissions emitted per kilometer compared to 2021 levels.In the first 10 months of 2024,the market share of EVs in the EU fell to 20.2%from 21.6%last year.ACEA is calling for a two-yea

288、r delay in the tightened carbon dioxide targets for 2025 to avoid fines of up to 15 billion,which represents approximately 25%of annual R&D spending in Europe.If successful,relaxing the 2025 targets and fines could alleviate one important earnings risk for 2025 for the affected OEMs in the region.37

289、Industry Credit Outlook 2025:Autos January 14,2025 Related Research Auto Industry Buckles Up for Trumps Proposed Tariffs on Car Imports,Nov.29,2024EV Makers To Bet$20 Billion On South And Southeast Asia,Oct 29,2024China Auto:Survival Of The Fittest,Oct.17,2024Idling Auto Sales Limit Upside For U.S.A

290、uto Sector Ratings,Oct 10,2024Global Auto Outlook:More Players,Less Profit,Oct.9,2024Credit FAQ:Inflation,China,And EV Transition Risks Casts Long Shadow On North AmericanAuto Suppliers,July 22,2024Industry Credit Outlook Update Asia-Pacific:Autos,July 18,2024Industry Credit Outlook Update Europe:Au

291、tos,July 18.2024Industry Credit Outlook Update North America:Autos,July 18.2024Autoflash EMEA:Suppliers Feel The Heat Of Low Volumes And Earnings Pressure,July 1,2024Rated China Carmakers Can Take The Heat From European Tariff Hikes On EVs,June 17,2024Credit FAQ:Why China Is At The Center Of Global

292、Auto Conversations,June 11,2024CreditWeek:Who Will Emerge As The Winners And Losers Of The Electric Vehicle AdoptionRace?,May 30,2024China EV Startups Struggling To Stay Afloat,May 28,2024Asian Auto:Resiliency Over Adversity,May 23,2024Hybrids Prop Up Japanese Automakers,April 24,202438Industry Cred

293、it Outlook 2025:Autos January 14,2025 Industry Forecasts Auto OEMs Auto Suppliers Chart 12 Chart 13 a)Revenue growth(local currency)a)Revenue growth(local currency)b)EBITDA margin(adjusted)b)EBITDA margin(adjusted)c)Debt/EBITDA(median,adjusted)c)Debt/EBITDA(median,adjusted)d)FFO/Debt(median,adjusted

294、)d)FFO/Debt(median,adjusted)Source:S&P Global Ratings.Revenue growth shows local currency growth weighted by prior-year common-currency revenue share.All other figures are converted into U.S.dollars using historic exchange rates.Forecasts are converted at the last financial year-end spot rate.OEMs-O

295、riginal equipment manufacturers.FFO-Funds from operations.-5%0%5%10%15%20%25%2021202220232024f2025f2026fGlobal-10%-5%0%5%10%15%20%2021202220232024f2025f2026fGlobalN.AmericaEurope0%2%4%6%8%10%12%14%2021202220232024f2025f2026fGlobal0%2%4%6%8%10%12%14%2021202220232024f2025f2026fGlobalN.AmericaEurope0.0

296、 x0.5x1.0 x1.5x2.0 x2.5x3.0 x2021202220232024f2025f2026fGlobal0.0 x1.0 x2.0 x3.0 x4.0 x5.0 x2021202220232024f2025f2026fGlobalN.AmericaEurope0%10%20%30%40%50%60%70%80%2021202220232024f2025f2026fGlobal0%5%10%15%20%25%30%35%2021202220232024f2025f2026fGlobalN.AmericaEurope39Industry Credit Outlook 2025:

297、Autos January 14,2025 Cash,Debt,And Returns:Autos Chart 14 Chart 15 Cash flow and primary uses Return on capital employed Chart 16 Chart 17 Fixed-versus variable-rate exposure Long-term debt term structure Chart 18 Chart 19 Cash and equivalents/Total assets Total debt/Total assets Source:S&P Capital

298、 IQ,S&P Global Ratings calculations.Most recent(2024)figures use the last 12 months data.010020030040050020092011201320152017201920212023$BnCapexDividendsNet AcquisitionsShare BuybacksOperating CF-1012345620092011201320152017201920212023Global Autos-Return On Capital(%)0%10%20%30%40%50%60%70%80%90%1

299、00%2009 201120132015201720192021 2023Variable Rate Debt(%of Identifiable Total)Fixed Rate Debt(%of Identifiable Total)010020030040050060005001,0001,5002,0002009 20112013 2015 2017 2019 2021 2023LT Debt Due 1 YrLT Debt Due 2 YrLT Debt Due 3 YrLT Debt Due 4 YrLT Debt Due 5 YrLT Debt Due 5+YrVal.Due In

300、 1 Yr RHS$Bn024681012141620092011201320152017201920212023Global Autos-Cash&Equivalents/Total Assets(%)05101520253035404520092011201320152017201920212023Global Autos-Total Debt/Total Assets(%) January 14,2025 Industry Credit Outlook 2025 Contacts Renato Panichi Milan+39 02 7211 1215 renato.panichi Pa

301、scal Seguier Paris+33 1 40 75 25 89pascal.seguier William Ferara New York+1 212 438 1776 bill.ferara Alexandre Michel Mexico City+52 155 5081420 alexandre.michel Crystal Wong Hong Kong+852 2533 3504 crystal.wong Building Materials Stable credit quality on a weaker foundation January 14,2025 This rep

302、ort does not constitute a rating action.Whats changed?Heightened geopolitical and trade tensions could indirectly affect the sector.Most building products are produced and sold locally.However,increasing trade tensions and continued geopolitical risk may indirectly affect sales by hampering business

303、 and consumer confidence.Rating pressure is confined in the B category.Elsewhere,we expect credit quality to remain largely stable in 2025 despite the prolonged effects of challenging market conditions.M&A activity has resumed.After renewed activity in 2024,we anticipate further acquisitions,particu

304、larly large companies expanding in regions or segments that benefit from higher growth.What are the key assumptions for 2025?Volume recovery will be very gradual.In most regions,the residential sector is still struggling,and growth is confined to infrastructure construction fueled by public funds.La

305、rgely stable profitability.Limited volume recovery by the end of 2025 may support operating leverage,but high commodity,labor,and delivery costs could put pressure on margins.Capital expenditure(capex)is sustained.Investments in high growth business segments,climate transition,and digitalization con

306、tinue to drive capital allocation.What are the key risks around the baseline?Prolonged business downturn.Weak demand could persist as property and building product prices stay high.Also,geopolitical and trade tensions could affect household confidence.Financial policies are more aggressive.Given bot

307、h increased acquisition spending and longer than anticipated market softness,the debt leverage cushion has deteriorated for many issuers.High costs linked with climate transition.Absent sufficient support from public bodies,it can be difficult for companies and households to invest to comply with lo

308、cal decarbonization regulation.41Industry Credit Outlook 2025:Building Materials January 14,2025 Ratings Trends:Building Materials Chart 1 Chart 2 Ratings distribution Ratings distribution by region Chart 3 Chart 4 Ratings outlooks Ratings outlooks by region Chart 5 Chart 6 Ratings outlook net bias

309、Ratings net outlook bias by region Source:S&P Global Ratings.Ratings data measured at quarter-end.051015202530AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCSDDBuilding Materials051015202530AAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+CCCCCC-CCCSDDNorth AmericaEuropeAsia-PacificLatin AmericaME

310、ANegative13%WatchNeg2%Stable78%Positive7%0%20%40%60%80%100%APACLatAmN.AmericaEuropeNegativeWatchNegStableWatchPosPositive-45-35-25-15-55152015 2016 2017 2018 2019 2020 2021 2022 2023 2024Building MaterialsNet Outlook Bias(%)-60-40-2002040602015 2016 2017 2018 2019 2020 2021 2022 2023 2024N.AmericaEu

311、ropeAsia-PacificLatin AmericaNet Outlook Bias(%)42Industry Credit Outlook 2025:Building Materials January 14,2025 Industry Outlook:North America Ratings trends and outlook We expect credit quality to remain largely stable in 2025 despite the prolonged effects of challenging market conditions,offset

312、by the considerable benefit from nondiscretionary product resiliency and some opportunity for declining interest rates.The ratings on about 80%of issuers have a stable outlook with the remaining companies marginally biased toward negative outlooks compared with positive.Therefore,we anticipate that

313、most issuers are prepared to navigate uncertain conditions through 2025.We anticipate that any ratings deterioration will be concentrated on the lower-rated issuers.Building materials companies could still experience some margin pressure from higher commodity,labor,and freight costs,while the potent

314、ial for tariff implementation could result in materially higher prices that could dampen demand.We expect margins will be pressured if the ability to pass through cost increases is limited.Generally,building materials companies are successfully implementing cost-saving and efficiency initiatives,whi

315、ch we think will anchor margins above pre-pandemic levels.Companies that can maintain pricing power with lower cost inventory despite declining demand volume will be better positioned to meet our profit and leverage forecasts for 2025.Main assumptions about 2025 and beyond Interest rate cuts may als

316、o be materially delayed.This is because the Fed may react to the higher inflation expectation from tariffs.Inflation will erode purchasing power,which will disproportionately affect demand for discretionary products such as cabinetry and bath fixtures.In recent years,revenue across the portfolio has

317、 been generally strong but we expect flat to low-single-digit declines for the sector with commodity-based companies falling more sharply.We expect housing starts will remain stable at about 1.36 million in 2025(see chart 7).1.Interest rate cuts are not enough to reverse low repair and remodel spend

318、ing or delayedprojects.While we expect further interest rates cuts will eventually lead to an increase in renovation and other spending,the pace and speed of the improvement is expected to lag several quarters.The Federal Reserve(Fed)s 100 basis points(bps)of rate cuts in 2024 are also not likely to

319、 improve affordability enough to incentivize completion of larger discretionary projects.2.Margins will likely stay under pressure;however,public infrastructure spending may mitigate pressure for some issuers.We expect margins will remain under pressure in 2025 because of high commodity,labor,and de

320、livery costs.Aging housing stock and federal investments in infrastructure should increase demand but issuers will likely continue to rely on pricing power to maintain margins.3.Delayed construction market recovery may mean persistently pressured earnings.Fundamentals for the building materials sect

321、or remain subject to slowing economic growth and consumer spending.We previously anticipated the second half of 2024 would reflect more significant earnings recovery than what occurred.We expect consumer spending to remain pressured through the first half of 2025,some issuers may experience persiste

322、ntly low volumes.43Industry Credit Outlook 2025:Building Materials January 14,2025 Chart 7 U.S.housing starts Note:Multifamily starts are housing starts of 5-unit structure.Data as of Oct.2024.Source:Federal Reserve Economic Data.Nonresidential and residential construction is forecast to contract in

323、 2025.Better-than-expected performance for both end markets throughout 2024(see chart 8),despite challenging conditions and higher borrowing costs.We expect market fundamentals to remain strained in 2025 as we think that current interest rates remain restrictive of housing affordability.Similarly,we

324、 anticipate weak nonresidential construction in 2025.Public construction outlay is likely to continue offsetting private construction contraction,however,we think that recent indicators may foreshadow exhausted growth sources for infrastructure investments.Chart 8 U.S.nonresidential and residential

325、construction forecast fForecast.Source:S&P Global Ratings Economics,Economic Outlook U.S.Q1 2025:Steady Growth,Significant Policy Uncertainty.02004006008001,0001,2001,4001,6001,8002,000Jan 1990Dec 1990Nov 1991Oct 1992Sep 1993Aug 1994Jul 1995Jun 1996May 1997Apr 1998Mar 1999Feb 2000Jan 2001Dec 2001Nov

326、 2002Oct 2003Sep 2004Aug 2005Jul 2006Jun 2007May 2008Apr 2009Mar 2010Feb 2011Jan 2012Dec 2012Nov 2013Oct 2014Sep 2015Aug 2016Jul 2017Jun 2018May 2019Apr 2020Mar 2021Feb 2022Jan 2023Dec 2023(Thousand units)MultifamilySingle-family-10-505101520202021202220232024f2025f2026fAnnual average change(%)Nonre

327、sidentialconstructionResidentialconstruction44Industry Credit Outlook 2025:Building Materials January 14,2025 Credit metrics and financial policy With an uptick in merger and acquisition(M&A)activity in the first half of 2024 and many companies refinancing,completing add-ons,or raising new debt in 2

328、024,the credit cushion has largely depleted from pandemic-era highs.We viewed the capital structure rebalancing as largely credit neutral;however,the combination of elevated debt and market uncertainty may contribute to negative bias within the sector.We have taken negative rating actions on compani

329、es like Cornerstone Building Brands Inc.and Mannington Mills Inc.whose performance was weaker than expected and coupled with newly raised debt levels resulted in materially weaker metrics.Well capitalized companies demonstrating strong cash flow,profitability,and the ability to pass on cost increase

330、s are likely to see stable or improving credit metrics.The outlook bias is more negative than in 2023(see chart 9)reflecting some issuers inability to maintain stable key credit metrics through the cycle.Chart 9 U.S.building materials companies outlook distribution Source:S&P Global Ratings.Key risk

331、s or opportunities around the baseline 0204060801002008 2009 2010201120122013201420152016201720182019 2020 20212022 2023 2024(%)PositiveStableNegative1.Interest rates and cost inflation could strain consumer spending and reduce earnings.Construction has remained soft as interest rates remain restric

332、tive despite a 100 bps cut by the Fed in 2024.We anticipate affordability will remain an issue across repairs and remodeling,and new residential construction markets due to cost pressures.The recent flattening in infrastructure spending also indicates exhausted growth in infrastructure-driven nonres

333、idential construction.2.Successful implementation of tariffs may affect margins.Suggested tariffs by the new U.S.presidential administration may lead to higher material costs,disrupt supply chains,and potentially slow construction projects.Margin performance will likely depend on a companys ability to pass on increases costs,a disproportionately challenging task for smaller companies or those in h