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Fitch: Near-Term Rebound in Revenue Fundamentals & Credit Market Access Urgent for U.S. Airlines

Dépèche transmise le 6 mai 2009 par Business Wire

CHICAGO--(BUSINESS WIRE)--Fitch Ratings views a near-term rebound in revenue fundamentals and credit market access as increasingly urgent if the U.S. airline industry is to avoid another period of intense liquidity pressure as macroeconomic and air travel demand fundamentals improve only slowly moving into 2010. In the spring edition of 'Airline Credit Navigator,' Fitch also says in spite of cash flow support delivered by plunging crude oil and jet fuel prices since last summer's alarming peak, the outlook for operating margins and free cash flow has taken a turn for the worse among most U.S. carriers in early 2009.

'Despite deep concerns related to the revenue environment, low fuel prices represent a huge source of cash flow support for the industry,' said Bill Warlick, senior director at Fitch Ratings. 'We estimate that U.S. carriers as a group could realize over $17 billion of annualized cash savings this year as a result of the dramatic decline in spot jet fuel prices from over $4.00 per gallon at last summer's peak to less than $1.50 per gallon early this year.'

While some U.S. carriers had limited success in raising new capital in the first quarter, access to credit markets remains highly constrained. With heavy and steady refinancing requirements over the next few years, this situation will need to change quickly if liquidity levels are to remain comfortable during a prolonged period of operating stress.

'Even factoring in a slow improvement in year-over-year unit revenue comparisons as the economy stabilizes, U.S. airlines generally lack the free cash flow generation power to fund heavy debt maturities without solid access to the capital markets,' continued Warlick. 'While the industry has historically had success in tapping new sources of liquidity even when operating conditions are poor, the current state of the world financial system and the very limited size of remaining unencumbered asset bases will preclude any rapid return to the era of open aircraft-backed debt financing seen earlier in the decade.'

Fitch says the greatest risk factor for the industry over the near-term is the potential for further weakness in demand, yields and passenger revenue per available seat mile (RASM) extending through the summer as the global recession continues. While some very preliminary signs of a moderation in year-over-year RASM comparisons started to take shape in April 2009 as booking trends seemed to stabilize at the March lows, new concerns appeared on April 27 as the swine flu virus began to spread beyond Mexico. The scope of any immediate revenue shock linked to swine flu is likely to be limited to heavily-affected areas including Mexico where total U.S. industry exposure is relatively small. Should the number of new flu-related deaths remain low, with a potential leveling off of new cases by early summer, the industry revenue shock will be relatively mild. In addition, margin pressure in affected markets will be contained in part by announced schedule reductions aimed at temporarily realigning capacity with a lower level of demand.

Airlines currently rated by Fitch include:

--AMR Corp. 'CCC'; Negative Outlook;

--Continental Airlines, Inc. 'B-'; Stable Outlook;

--Delta Air Lines, Inc. 'B'; Negative Outlook;

--JetBlue Airways Corp. 'B-'; Negative Outlook;

--Southwest Airlines Co. 'BBB+'; Stable Outlook;

--UAL Corp. 'B-'; Negative Outlook;

--US Airways Group, Inc. 'CCC'; Negative Outlook.

The special report 'Airline Credit Navigator' is now available at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.