Fitch releases Airline Credit Navigator for Spring 2010
13-Apr-2010 Fitch Ratings has published the Spring 2010 issue of Airline Credit Navigator, which provides an overview of recent financial and credit quality trends in the U.S. airline industry.
Key themes in the report include:
As U.S. airlines prepare to release their first quarter financial results, carriers can at last point to clear signs of recovery in cash flow generation and balance sheet health following two years of extreme operating pressure in 2008 and 2009.
U.S. airline management teams by and large remain cautious with regard to the need for additional available seat mile (ASM) capacity growth this year.
Given the urgent importance of balance sheet de-leveraging through the next industry demand cycle as the key to ratings improvement, Fitch will be focused first and foremost on the free cash flow (FCF) generation performance of U.S. carriers as the recovery takes hold in 2010.
With few exceptions, the U.S. legacy carriers face heavy debt maturities (and in some cases rising cash pension funding obligations) that simply will not be funded entirely out of internal cash flow over the next several quarters - even if a solid global recovery takes shape.
Renewed speculation surrounding potential mergers and industry consolidation reflects the notable improvements in the industry operating outlook and the long-term logic of increased concentration in a largely commoditized industry that remains vulnerable to external demand and fuel price shocks. Fitch continues to see further industry consolidation as a necessary and inevitable part of the U.S. airline industry's effort to ensure more durable financial profiles through economic cycles. Merger execution risks and possible reliance on debt to fund deals remain a concern, however, in light of the urget need for U.S. carriers to reduce leverage at a point in the cycle when cash flow generation is strong.