Delta Air Lines, American Have Debt Rating Cut : Investments: Moody’s cites poor outlook for earnings and large capital expenditures in downgrading billions of dollars in long-term debt.
Citing a “deteriorating outlook for earnings,” Moody’s Investors Service today cut debt ratings for two of the nation’s largest airlines.
Moody’s said it downgraded ratings of Ft. Worth-based AMR Corp. and its American Airlines subsidiary and Atlanta-based Delta Air Lines. The carriers are the nation’s second- and third-largest, respectively, in terms of revenue passenger miles.
Moody’s said about $3.5 billion of long-term debt issued by AMR and American was affected by the downgrade, in anticipation of “reduced financial flexibility in light of the outlook for lower earnings during a period of very substantial capital spending by the airline subsidiary.”
The downgrade completes a review of the company that Moody’s began Sept. 18.
The rating agency said “a combination of higher cost for jet fuel and softer travel demand could have a serious adverse effect on AMR’s cash flow in the near to intermediate term and comes at a time when the company is investing heavily in the modernization and expansion of its airline fleet and the extension of its global route network.”
Moody’s lowered AMR ratings on industrial revenue bonds and senior bonds to single-A3 from single-A2, on senior unsecured debt issues to Baa1 from single-A3 and on commercial paper to prime-2 from prime-1.
In addition, Moody’s ordered downgrades for about $2.4 billion of Delta’s long-term debt, “reflecting the deteriorating outlook for earnings in light of the volatile and escalating cost of jet fuel.”
Moody’s said it lowered the No. 3 U.S. carrier’s ratings because of a “softening demand for domestic air travel and its continuing capital spending plans to expand in the U.S.”
As with AMR, Moody’s said it “expects Delta’s future cash flow to be substantially reduced at a time when the company is investing heavily in the modernization and expansion of its airline fleet and adding foreign cities in Asia and Europe to its growing international route network.”
Moody’s said it downgraded the following Delta ratings: secured equipment certificates, to single-A2 from single-A1; senior unsecured debt issues and industrial revenue bonds, to single-A3 from single-A2; shelf registration, to prospective single-A3 from prospective single-A2; industrial revenue bonds, to Baa1 from single-A3; and commercial paper, to prime-2 from prime-1.
Meanwhile, Standard & Poor’s Corp. announced it lowered Chicago-based Midway Airline Inc.’s rating on $54 million of convertible exchangeable preferred stock.
