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Reuters
US Airways downgrade threatens big aircraft deal
Wednesday May 5, 5:41 pm ET
By John Crawley
WASHINGTON, May 5 (Reuters) - US Airways Group Inc. (NasdaqNM:UAIR - News) hit more damaging turbulence on Wednesday when its corporate credit rating spiraled deeper into junk and threatened the huge aircraft financing deal underpinning its restructuring.
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Standard & Poor's downgraded the airline's debt to CCC+ from B- and attached a negative outlook just days before US Airways confronts the biggest single challenge to its survival -- the arrival of Southwest Airlines (NYSE:LUV - News) at its Philadelphia hub.
"The downgrade was based on the difficult challenge faced by US Airways as it seeks to rapidly lower its operating expenses in response to mounting pressure from low-cost competitors," Standard & Poor's analyst Philip Baggaley said in a statement.
Low-cost powerhouse Southwest is poised to enter the Philadelphia market on Sunday, invading a top revenue-producing city for Arlington, Va.-based US Airways, which emerged from bankruptcy a year ago only to find the path to viability more difficult than imagined.
"The economics are getting uglier by the minute," said Mike Boyd of the Boyd aviation consulting group in Colorado.
Anticipation of the downgrade prompted US Airways to ask General Electric (NYSE:GE - News) Capital Aviation Services to amend their agreement for financing a portion of the massive jet order that underpins the airline's restructuring strategy.
A rating below 'B-' triggers an option for the GE unit to withdraw from the agreement to back the Embraer (Sao Paolo:EMBR3.SA - News) and Bombardier Inc (Toronto:BBDb.TO - News) aircraft ordered a year ago with much fanfare.
The original order was for 170 jets worth an estimated $4.3 billion with Embraer and Bombardier also providing financing. So far, US Airways has received 22 planes from Bombardier - mainly 50 seat jets -- and eight 72-seaters from Embraer.
Joseph Nadol, an analyst with JP Morgan, said in a research note that GE Capital Aviation Services does $2.7 billion worth of business with US Airways. He and other analysts said GE would carefully weigh the cost of withdrawing from the order on the rest of its business with the airline.
David Castelveter, a US Airways spokesman, said the discussions with GE capital unit are ongoing and he would not characterize them or predict an outcome. A spokesman for the GE Capital Aviation Services also confirmed the talks but offered no additional comment.
US Airways closed 12 cents lower on the Nasdaq to $2.31 ashare.
Additional reporting by Kathy Fieweger in Chicago.
US Airways downgrade threatens big aircraft deal
Wednesday May 5, 5:41 pm ET
By John Crawley
WASHINGTON, May 5 (Reuters) - US Airways Group Inc. (NasdaqNM:UAIR - News) hit more damaging turbulence on Wednesday when its corporate credit rating spiraled deeper into junk and threatened the huge aircraft financing deal underpinning its restructuring.
ADVERTISEMENT
Standard & Poor's downgraded the airline's debt to CCC+ from B- and attached a negative outlook just days before US Airways confronts the biggest single challenge to its survival -- the arrival of Southwest Airlines (NYSE:LUV - News) at its Philadelphia hub.
"The downgrade was based on the difficult challenge faced by US Airways as it seeks to rapidly lower its operating expenses in response to mounting pressure from low-cost competitors," Standard & Poor's analyst Philip Baggaley said in a statement.
Low-cost powerhouse Southwest is poised to enter the Philadelphia market on Sunday, invading a top revenue-producing city for Arlington, Va.-based US Airways, which emerged from bankruptcy a year ago only to find the path to viability more difficult than imagined.
"The economics are getting uglier by the minute," said Mike Boyd of the Boyd aviation consulting group in Colorado.
Anticipation of the downgrade prompted US Airways to ask General Electric (NYSE:GE - News) Capital Aviation Services to amend their agreement for financing a portion of the massive jet order that underpins the airline's restructuring strategy.
A rating below 'B-' triggers an option for the GE unit to withdraw from the agreement to back the Embraer (Sao Paolo:EMBR3.SA - News) and Bombardier Inc (Toronto:BBDb.TO - News) aircraft ordered a year ago with much fanfare.
The original order was for 170 jets worth an estimated $4.3 billion with Embraer and Bombardier also providing financing. So far, US Airways has received 22 planes from Bombardier - mainly 50 seat jets -- and eight 72-seaters from Embraer.
Joseph Nadol, an analyst with JP Morgan, said in a research note that GE Capital Aviation Services does $2.7 billion worth of business with US Airways. He and other analysts said GE would carefully weigh the cost of withdrawing from the order on the rest of its business with the airline.
David Castelveter, a US Airways spokesman, said the discussions with GE capital unit are ongoing and he would not characterize them or predict an outcome. A spokesman for the GE Capital Aviation Services also confirmed the talks but offered no additional comment.
US Airways closed 12 cents lower on the Nasdaq to $2.31 ashare.
Additional reporting by Kathy Fieweger in Chicago.
