GogglesPisano
Pawn, in game of life
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Fitch Warns of Airline Debt Pressures
Tuesday February 6, 11:21 am ET
Fitch Warns of Possible Debt Load Increases at Legacy Airlines Due to Aging Fleets
NEW YORK (AP) -- Fitch Ratings said Tuesday that debt levels could rise in the years ahead at big hub-and-spoke U.S. carriers as they try to modernize their aging fleets.
The credit-rating agency said it expects large, multiyear aircraft orders for the network airlines to peak between 2010 and 2012, as they replace the older portions of their fleets. That would likely push the legacy carriers to increase debt levels, just a few years after they began to repair their impaired balance sheets.
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"Even during a period when revenue fundamentals are excellent, few carriers generate the operating cash flow needed to fund large numbers of new aircraft without driving leverage higher," Bill Warlick, senior director of Fitch's U.S. Airlines and Transportation team, said in a statement. "U.S. carriers, especially the legacy airlines, will need to consider either financing new aircraft through debt or operating leases as a way to obtain new planes."
Fitch said the average fleet age of a legacy carrier ranges from 10 years for Continental Airlines Inc. to 18 years at Northwest Airlines Corp.
Possibly aiding airlines could be future industry consolidation, Fitch said. Analysts and investors have been speculating about possible mergers and acquisitions, which would allow carriers to shrink their fleets, cut capacity and provide more pricing power to the industry.
Consolidation could mean better operating margins and cash flow for legacy carriers, which would support more aircraft debt without hurting credit quality, Fitch said.
Delta Air Lines Inc., though, recently fended off a hostile bid from US Airways Group Inc. Midwest Air Group Inc. is fighting a takeover bid from AirTran Holdings Inc.
Tuesday February 6, 11:21 am ET
Fitch Warns of Possible Debt Load Increases at Legacy Airlines Due to Aging Fleets
NEW YORK (AP) -- Fitch Ratings said Tuesday that debt levels could rise in the years ahead at big hub-and-spoke U.S. carriers as they try to modernize their aging fleets.
The credit-rating agency said it expects large, multiyear aircraft orders for the network airlines to peak between 2010 and 2012, as they replace the older portions of their fleets. That would likely push the legacy carriers to increase debt levels, just a few years after they began to repair their impaired balance sheets.
ADVERTISEMENT
"Even during a period when revenue fundamentals are excellent, few carriers generate the operating cash flow needed to fund large numbers of new aircraft without driving leverage higher," Bill Warlick, senior director of Fitch's U.S. Airlines and Transportation team, said in a statement. "U.S. carriers, especially the legacy airlines, will need to consider either financing new aircraft through debt or operating leases as a way to obtain new planes."
Fitch said the average fleet age of a legacy carrier ranges from 10 years for Continental Airlines Inc. to 18 years at Northwest Airlines Corp.
Possibly aiding airlines could be future industry consolidation, Fitch said. Analysts and investors have been speculating about possible mergers and acquisitions, which would allow carriers to shrink their fleets, cut capacity and provide more pricing power to the industry.
Consolidation could mean better operating margins and cash flow for legacy carriers, which would support more aircraft debt without hurting credit quality, Fitch said.
Delta Air Lines Inc., though, recently fended off a hostile bid from US Airways Group Inc. Midwest Air Group Inc. is fighting a takeover bid from AirTran Holdings Inc.
