S&P Global Ratings has downgraded American Airlines credit to B-, the lowest rating among its airline peers.
According to S&P, the carrier’s rating remains negative, seeing that it is now six notches deep into speculative-grade, or “junk” territory. The credit rating agency also maintained its assessment of liquidity at “less than adequate,” reiterating the expectation of a “substantially negative level of cash generation” over the next one year.
We expect American Airlines to generate a substantial cash flow deficit in 2020 due to the impact of COVID-19. However, it should return to positive cash flow generation in 2021. While the company is reducing capacity and some associated costs, and benefits from the steep decline in oil prices, we expect these to continue to be more than offset by much weaker traffic.
Statement from S&P
Last month, the airline announced plans to reduce total operational and capital expenditures by $12 billion in 2020. This would happen by cutting capacity by 80% in April and May, and by 70% in June. The airline is also retiring four aircraft types, including its fleets of Boeing 757s and 767s and Airbus A330-300s, and has suspended marketing and hiring campaigns.
American Airlines is the world’s largest airline when measured by fleet size, scheduled passengers carried, and revenue passenger mile. American, together with its regional partners, operates an extensive international and domestic network with almost 6,800 flights per day to nearly 350 destinations in more than 50 countries.
The airline posted a $2.2 billion net loss in the first quarter of 2020, its first quarterly loss since emerging from bankruptcy in 2013. The loss is a shift from $185 million profit recorded in the same period last year. It incurred losses of $2.65 per share in the quarter on revenue of $8.52 billion, against its target of $2.33-per-share loss on revenue of $8.9 billion.
S&P rates the credit of United Airlines Holdings at BB-, Delta Air Lines at BB, Southwest Airlines at an investment-grade level of BBB, and JetBlue Airways at BB-.
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