Fitch downgrades DL, warns of possible UA, AA, US bankruptcy filings

Delta Air Lines' credit facility rating was downgraded yesterday by Fitch Ratings, which cited "the continued erosion of the airline's near-term cash flow generation" and the expectation that it will "report another year of substantially negative free cash flow in 2009 as the airline struggles to adjust capacity to a diminished level of demand."

Still, DL is in better shape than several of its rivals, Fitch pointed out. Its credit rating was lowered to B- from B. In comparison, American Airlines, US Airways and United Airlines all have ratings of CCC (ATWOnline, June 11). "Any of those carriers" could be forced to file for bankruptcy protection "as early as the winter if operating trends fail to stabilize," Fitch warned.

Even taking into account DL's comparatively sturdy liquidity position, "the steady erosion of cash balances since last fall threatens [its] ability to comfortably meet heavy fixed obligations without improved access to capital," Fitch said, noting that the company has "scheduled debt maturities of over $5 billion between now and the end of 2011" including $2.9 billion in 2010. It added that DL's "ability to maintain liquidity near current levels depends upon improved credit market openness and a stabilization of the industry operating environment in 2010. . .Fitch regards a cash position of over $4 billion as critical."

The rating agency said US airlines' unit revenue continues to fall sharply year-over-year in the current quarter with little sign of improvement in sight. "The big driver of negative RASM comparisons in the second quarter remains weak business bookings on high-fare transatlantic and transpacific routes," it noted. "In order to offset the impact of poor front cabin loads, US legacy carriers and foreign flag carriers have been engaged in aggressive fare discounting. Fitch expects this fare and unit revenue pressure to continue through the summer, dampening hopes of a free cash flow turnaround in the second half of the year."