S&P raises Continental outlook to stable

Standard & Poor's raised its outlook on Continental Airlines Inc. to stable from negative and confirmed its ratings including its corporate credit at B.

S&P said the outlook revision reflects Continental's continued better-than-average operating performance and improved liquidity.

The airline's labor costs are below those of most peer large U.S. airlines, helping it to generate a net profit of $33 million, before unusual gains, in the third quarter ended Sept. 30.

Continental ended the quarter with about $1.3 billion in cash, excluding cash that is restricted or held by its minority-owned regional airline affiliate, S&P noted. The company made contributions to its pension plans well in excess of required amounts ($372 million during 2003, compared with a minimum of $89 million), bringing the plans' funding status to about 90% of the year-end 2002 current liability and thereby greatly reducing minimum payments that would be due in 2004.

Continental's rating reflects its heavy debt and lease burden and risks of the competitive and cyclical airline industry, which outweigh a low operating cost structure and better-than-average earnings performance, S&P said.

Continental's liquidity, a concern following Sept. 11, 2001, continues to improve gradually but remains somewhat constrained. Cash and short-term investments of $1.3 billion at Sept. 30 excluding amounts that are restricted or held by ExpressJet Holdings, are the principal source of financial flexibility.

Continental has a substantial debt and lease burden, due to an extensive modernization and expansion of its fleet since the mid-1990s. That fleet program has, however, generated savings in fuel efficiency and maintenance, S&P added. Continental's operating costs are one of the lowest among large, hub-and-spoke airlines in the U.S., due to mostly to flexible work rules and lower overall labor compensation.

Upcoming debt maturities in the $500 million to $600 million range during the remainder of 2003 and in 2004 and minimum pension payments are manageable, and a large majority of capital expenditures have financing commitments in place.

S&P says Northwest unchanged

Standard & Poor's said Northwest Airlines Corp.'s ratings including its corporate credit at B+ with a negative outlook are unchanged after the company reported net earnings of $47 million in the third quarter ended Sept. 30, 2003, compared with a loss of $46 million in the year-earlier quarter.

The profit, while narrow, is expected to be one of the better performances among large U.S. airlines this quarter, reflecting some revenue improvement and continued cost-control efforts, S&P said.

Still, Northwest tends to have a greater seasonal change in revenues than most U.S. airlines, benefiting disproportionately from summer travel, and losses are expected in the next several quarters.

Northwest's management is seeking to negotiate concessions from the airline's labor groups, but faces a challenge in persuading unions to accept needed cost-saving changes given the company's ample near-term liquidity, S&P said.

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