Fitch lowers US Airways and United outlooks
May 30th, 2008 | by admin |NEW YORK—Fitch Ratings on Thursday pushed its credit rating on US Airways Group Inc. deeper into junk territory, and cut its outlook on the carrier and potential combination partner UAL Corp. because of concerns over rising fuel prices.
The credit rating firm dropped its outlook on both airlines to negative from stable, suggesting their credit ratings could face additional downgrades in the future. Lower ratings could make it more difficult for the carriers to secure loans with favorable terms even as analysts expect both to rack up massive losses this year.
At the same time, Fitch cut US Airways’ rating to “CCC” from “B-”, reflecting what it called “the growing likelihood of a cash shortfall later this year, as well as (US Airways’) limited flexibility in raising additional cash through asset sales or new financings.”
“Fitch believes that the potential for a liquidity squeeze in late 2008 or early 2009 has increased significantly,” the firm said of Tempe, Ariz.-based US Airways.
In an interview, Fitch senior airline analyst Bill Warlick said the US Airways downgrade does not mean the airline is at immediate risk of bankruptcy, but “it does suggest that some sustained improvement in operating conditions — fuel and revenue trends — would be required to avoid financial distress.”
US Airways spokesman Morgan Durrant declined to comment on the move, citing company policy.
Chicago-based United’s rating remains “B-”. While higher than US Airways’ rating, it is several notches below investment grade.
The moves come as the CEOs of both airlines were scheduled to meet to discuss a possible tie-up, two people briefed on the discussions told The Associated Press. The consummation of such a deal, while potentially offering long-term cost savings, would likely require the airlines to put up substantial cash to cover integration costs.
“Some external financing would be required to support the capital structure of the combined airline,” Warlick said.
Credit rating firms have been lowering their ratings on a number of carriers in recent months as the price of fuel has risen. Airlines have responded to the increased costs by boosting fares, adding fees and slashing flights, but the changes have done little to alleviate investors’ and lenders’ concerns.
Most major airline shares are hovering near multiyear lows. However, shares of United and US Airways rose Thursday as oil prices fell sharply. United shares gained 36 cents, or 4.6 percent, to $8.27. US Airways shares added 31 cents, or 7.6 percent, to $4.39.
