Fitch predicts improved credit profiles for U.S. airlines

Fitch Ratings said the credit profiles of the largest U.S. airlines are likely to improve again in 2007 as healthy supply and demand fundamentals set the stage for another year of meaningful progress toward debt reduction and balance sheet repair.

Fitch-rated U.S. airlines include AMR Corp. (B-), Continental Airlines, Inc. (B-), JetBlue Airways Corp. (B), Southwest Airlines Co. (A), UAL Corp. (B-) and US Airways Group, Inc. (CCC).

Despite the fact that jet fuel prices will likely remain well outside the comfort zone of U.S. airlines again in 2007, respectable operating margins and modest capital spending requirements should put the most highly leveraged legacy carriers in a position to meet big scheduled debt payments without undermining their strong cash positions next year, the agency predicted.

Still, Fitch said the U.S. airline industry remains uniquely vulnerable to external shocks, as seen most recently in the foiled London bomb plot and the subsequent changes in security procedures. While the impact of the Aug. 10 events does not appear to be long-lasting, the industry's exposure to demand and fuel shocks is well established, the agency said, adding that in light of this fact, a focus on liquidity and financial flexibility is expected to influence U.S. airline finance teams again in 2007.

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