S&P may cut 11 airlines,14 aerospace firms on war fears
NEW YORK (Reuters) — Credit rating agency Standard & Poor's said Tuesday it may cut its ratings for 11 airlines and 14 aerospace companies because a U.S.-Iraq war looks "imminent."
Nine U.S. airlines, including three of the five largest — Delta, Northwest and Continental — as well as European carriers British Airways and Lufthansa are covered by the airline review. S&P said it may cut British Airways to "junk" status.
"Airlines, particularly large U.S. hub-and-spoke airlines, have already been hurt by high fuel prices, an accelerating erosion in bookings on international routes, and, indirectly, by the depressing effect of uncertainty on business activity," S&P analyst Philip Baggaley said in a statement. A war would cause "further financial damage," he said.
The credit rating agency's review of aerospace companies includes Boeing Co., the world's largest commercial aircraft maker, and European Aeronautic Defence and Space Co., which owns most of Airbus SAS, Boeing's largest rival.
United Airlines, a unit of UAL, warned for the first time on Tuesday that there is a "distinct possibility" that it may go out of business. Some analysts, meanwhile, have said AMR unit America Airlines, the world's largest airline, might soon follow United and US Airways into bankruptcy court.
Transportation Secretary Norman Mineta on Tuesday acknowledged a war might hurt U.S. airlines, and said the government is ready to assist them if necessary.
S&P said it may downgrade AirTran, Alaska Air Group, America West, ATA, Atlantic Coast Airlines, British Airways, Continental, Delta, Lufthansa, Northwest and Southwest.
The aerospace review includes Argo-Tech, Boeing, Britax Group, Dunlop Standard Aerospace, EADS, Goodrich, Hexcel, K&F Industries, Sabreliner, Sequa, Textron and its Textron Financial unit, and TransDigm.
S&P analyst Roman Szuper said the operating environment for airline equipment and aftermarket suppliers is "very challenging," especially in the United States, and will likely weaken in the near term if war breaks out.
HUB-AND-SPOKE OPERATORS UNDER PRESSURE
British Airways, Lufthansa and Southwest carry "investment-grade" ratings, while the other carriers are "junk" rated. S&P downgraded 11 U.S. airlines' aircraft-backed debt on Feb. 18 and has said it may downgrade other airlines, including aircraft-backed debt of American, United and US Airways.
"Hub operators are under severe pressure, and their credit statistics and liquidity positions are getting weaker," said Brian Clapp, an analyst at Muzinich & Co. in New York, whose $3.5 billion of junk bonds include Continental, Delta and Northwest debt. "This has been the case pretty much since the summer of 2001, even before 9-11."
Downgrades often boost borrowing or refinancing costs.
S&P rival Moody's Investors Service on Monday said it may downgrade Delta, Northwest and Continental, which rank Nos. 3, 4 and 5 among U.S. carriers.
"Investors should stay away from unsecured airline debt until you see passengers start to come back, or if a UAL liquidation sends passengers elsewhere," said Clapp.
Baggaley said even if the United States and its allies enjoyed a quick victory against Iraq, and no significant terrorist attacks took place, airlines would likely still suffer substantial losses, and fuel prices would be likely to fall more slowly than they did after the 1991 Gulf conflict.
Regional carriers and low-cost carriers such as Southwest, which is profitable, are less likely to suffer from declining passenger traffic, S&P said. Major U.S. carriers lost more than $11 billion in 2002.
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