Fitch may up UAL, United Airlines

Fitch Ratings said it placed the ratings of UAL Corp. and its principal operating subsidiary, United Airlines, Inc., on Rating Watch positive following news of the planned merger between UAL and Continental Airlines, Inc.

The ratings on positive watch include UAL's issuer default rating of CCC, along with United Airlines' issuer default rating of CCC, secured bank credit facility of B+ with a recovery rating of RR1 and senior unsecured rating of C with recovery rating of RR6.

An upgrade of the issuer default rating to B- could follow later in 2010 or at the time of the merger's closing if continuing revenue strength and a benign jet fuel price environment leads UAL to report consistently positive stand-alone free cash flow and declining debt levels, Fitch said.

If a merger closes, Fitch said it will eventually support sustainable improvements in margins, positive free cash flow generation and stronger liquidity.

Significant execution risk exists, however, and the terms of new labor contracts could have a substantial impact on the economics of the merger, the agency added.

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