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Airlines face possible downgrade
NEW YORK (Reuters) -- Credit rating agency Standard & Poor's said on Tuesday it may cut its ratings for 11 airlines and 14 aerospace companies because a war in Iraq looks "imminent." The airlines are nine U.S. carriers, including three of the five largest -- Delta Air Lines, Northwest Airlines Corp. and Continental Airlines -- as well as European carriers British Airways and Deutsche Lufthansa. S&P said it may cut British Airways to "junk" status. "Airlines, particularly large U.S. hub-and-spoke airlines, have already been hurt by high fuel prices, an accelerating erosion in bookings on international routes, and, indirectly, by the depressing effect of uncertainty on business activity," S&P analyst Philip Baggaley said in a statement. A war would cause "further financial damage," he said. The credit rating agency's review of aerospace companies includes Boeing Co., the world's largest commercial aircraft maker, and European Aeronautic Defence and Space Co., which owns most of Airbus SAS, Boeing's largest rival. United Airlines Inc., a unit of UAL Corp., warned for the first time on Tuesday that there is a "distinct possibility" that it may go out of business. Bankruptcy fearSome analysts have said AMR Corp. unit America Airlines Inc., the world's largest airline, might soon follow United and US Airways Group Inc. into bankruptcy court. Transportation Secretary Norman Mineta on Tuesday acknowledged a war might hurt U.S. airlines, and said the government is ready to assist them if necessary. S&P said it may downgrade AirTran Holdings, Alaska Air Group, America West Holdings Corp., ATA Holdings Corp., Atlantic Coast Airlines Holdings, British Airways, Continental, Delta, Deutsche Lufthansa, Northwest and Southwest Airlines Co. The aerospace review includes Argo-Tech Corp., Boeing and its Boeing Capital Corp. unit, Britax Group Plc, Dunlop Standard Aerospace Holdings Plc, EADS, Goodrich Corp., Hexcel Corp., K&F Industries Inc., Sabreliner Corp., Sequa Corp., Textron Inc. and its Textron Financial Corp. unit, and TransDigm Inc. S&P analyst Roman Szuper said the operating environment for airline equipment and aftermarket suppliers is "very challenging," especially in the United States, and will likely weaken in the near term if war breaks out. British Airways, Lufthansa and Southwest carry "investment-grade" ratings, while the other carriers are "junk" rated. S&P downgraded 11 U.S. airlines' aircraft-backed debt on February 18 and has said it may downgrade other airlines, including aircraft-backed debt of American, United and U.S. Airways. Downgrades often boost borrowing or refinancing costs. S&P rival Moody's Investors Service on Monday said it may downgrade Delta, Northwest and Continental, which rank as the No. 3, 4 and 5 U.S. carriers. Baggaley said even if the United States and its allies enjoyed a quick victory against Iraq, and no significant terrorist attacks took place, airlines would likely still suffer substantial losses, and fuel prices would be likely to fall more slowly than they did after the 1991 Gulf conflict. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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