Fitch upgardes US Airways on better balance sheet

London
Source: Flightglobal.com
This story is sourced from Flightglobal.com

Fitch Ratings has upgraded US Airways Group to "B-" from "CCC", and assigned an issuer default rating of "B-" due to "significant improvement" in the carrier's business model, evidenced by recent traffic results, operating earnings and cash flow from operations during the past two years.

The ratings apply to $1.1 billion of term loan debt

and $179 million of convertible notes outstanding.

While significant risks remain, Fitch believes US Airways is in a "better position" to withstand a weak operating environment or higher fuel costs, and the company's credit profile has improved beyond what was implied in the prior rating.

The rating outlook is stable.

Fitch highlights the recent asset swap with Delta Air Lines, after waiting for two years to get regulatory approval, whereby US Airways received 42 round-trip slots at its "focus airport" Reagan Washington National, and the right to operate daily flights

to Sao Paulo, Brazil in exchange for 132 round-trip slots at LaGuardia, which it divested to DAL.

"Once all the scheduled changes from this transaction

take effect this summer, US Airways will have nearly 99% of its capacity fly through its three hubs, Reagan Washington National or through the shuttle service, reflecting the full implementation of management's strategy."

US Airway's liquidity has improved with unrestricted cash of $2 billion as of year-end 2011, which represents 15% of revenues. Fitch views US Airway's liquidity to be weaker than its peers but adequate to withstand a moderate fuel or demand shock.

Despite improving earnings and cash flow, US Airway's debt levels remain high. The airline is a "heavy user" of off-balance-sheet leases but Fitch expects US Airways will own more of its aircraft over time.

Fitch notes total debt and capital leases at year-end 2011 stood at $4.6 billion with 91% of outstanding debt secured.

The carrier also has looming maturities in 2014 when $1.1 billion of its term loan matures and $172 million of convertible notes come due.