S&P cuts aircraft debt of six airlines

Standard & Poor's downgraded selected aircraft-backed debt of six U.S. airlines including America West Airlines Inc., American Airlines Inc., Continental Airlines Inc., Delta Air Lines Inc., Northwest Airlines Inc. and US Airways Inc. Corporate credit ratings and other non-aircraft-backed debt was not affected.

S&P said the downgrades reflect reduced aircraft values and thus collateral coverage for some issues of enhanced equipment trust certificates and revised estimates of airlines' likelihood of accepting, renegotiating or rejecting particular financings in potential bankruptcy scenarios.

Declines in asset protection were more limited and selective than those in factored into previous reviews of EETCs and there are signs that the long decline in aircraft values has bottomed out or begun to reverse for some models, S&P added.

Downgrades were concentrated mostly on EETCs backed wholly or partly by Boeing or McDonnell Douglas planes introduced in the 1980s (e.g. B737-300, B757-200, B767, B747-400, MD80 series) and factored in the likelihood of selective rejection of individual aircraft financings, attempts to renegotiate financings (as bankrupt United Air Lines Inc. is seeking to do for most of its aircraft-backed debt) and the differential effect that such actions could have on various classes of EETCs.

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