ATW Daily News

Fitch warns United's structure 'unsustainable' in current economy

Thursday June 11, 2009

United Airlines' credit facility rating was downgraded yesterday by Fitch Ratings, which warned that the carrier is facing "full-year passenger RASM declines of more than 10%" and "could report substantially negative free cash flow for the final three quarters of 2009."

The rating agency cautioned that "United's highly leveraged capital structure [is] unsustainable in the absence of a sharp turnaround in industry operating fundamentals." It also questioned UA's ability to finance the large long-haul aircraft order for which it recently issued an RFP (ATWOnline, June 5).

UA's rating was lowered to CCC from B- and the agency warned that further downgrades later this year are possible. "Fitch expects United's operating results and free cash flow generation to remain weak through the remainder of the year, largely as a result of its heavy exposure to premium business markets that have seen the steepest declines in passenger yields," it said. UA Chairman, President and CEO Glenn Tilton has stated that the carrier's premium traffic fell 30% in the first quarter.

With the demand environment weak, Fitch warned that "internal cash generation alone will not be sufficient to prevent an erosion of [UA's] unrestricted liquidity position by year end. . .United does face steady and heavy debt maturities." As of April 21, UA had scheduled maturities of debt and capital leases totaling $655 million for 2009's final three quarters. "Even if revenue trends stabilize late in the year, the airline faces over $1 billion in scheduled debt and capital lease principal payments next year, raising the probability of a deepening liquidity crisis," Fitch said, adding that UA also has scheduled debt maturities of $869 million in 2011.

UA recently sent an RFP to both Boeing and Airbus for a long-haul fleet renewal, but Fitch said the move reflects "a longer-term need. . .[with] no short-term implications for United's credit profile." It cautioned that UA won't be able successfully to finance "such a large multiyear order. . .[unless there is] a significant improvement in United's credit profile and the industry operating environment."

Separately, the Air Line Pilots Assn. yesterday sent a letter to US President Barack Obama on behalf of UA pilots requesting a "delay" in approval of the carrier's antitrust immunity for transatlantic operations with Continental Airlines until labor protections are adopted as part of the airlines' proposed transatlantic joint venture with Air Canada and Lufthansa. The US Dept. of Transportation granted tentative ATI in April (ATWOnline, April 8).

by Aaron Karp

Other headlines: