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Fitch rates American Airlines, US Airways B+

Staff writer |
Fitch Ratings has upgraded the ratings for American Airlines Group Inc. (AAG) and its primary operating subsidiary, American Airlines, Inc. to B+ upon the company's expected emergence from bankruptcy and merger with US Airways.

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Fitch has affirmed the existing ratings for US Airways Group, Inc. and US Airways Inc. at B+ following the completion of the merger with American Airlines, equalizing the ratings for all entities in the merged company. The Rating Outlook is Stable.

Fitch has also upgraded the ratings on American's senior secured credit facility and revolver to BB+/RR1 from BB-/RR1, US Airways' senior unsecured notes to B+/RR4 from B-/RR6, and US Airways' unsecured convertible notes to B-/RR6 from CCC+/RR6.

Fitch will be reviewing the existing ratings for various enhanced equipment trust certificates (EETCs) issued by US and American. Those ratings will be updated within the next several business days.

The ratings are supported by the significant structural improvements achieved at American through the bankruptcy process which have resulted in improving operating results, the strong recent operating performance of US Airways, and expectations that credit metrics will improve quickly from current levels.

The merger between US and American is also expected to produce a single carrier with a broad route structure that is expected to produce material revenue synergies and is much better suited to compete with its large domestic rivals, United and Delta. The projected liquidity position also supports the ratings.

In the near term Fitch remains cautious about the risks involved with executing a merger of this size and complexity. Current ratings are also limited by remaining uncertainties around long-term labor costs to be negotiated through joint collective bargaining agreements, management's priorities around cash deployment, and the unproven nature of the effectiveness of the newly combined route structure.

In addition to integration risks, Fitch notes that the airline industry remains highly cyclical and vulnerable to external shocks. The ratings incorporate Fitch's analysis of various stress scenarios including demand and fuel shocks, in which future results can decline quickly due to the high amount of operating leverage present in the business.

Fitch also notes that there are remaining uncertainties around certain aspects of American's management strategy going forward such as fuel hedging and leverage targets. The board of directors of the merged company also includes new members elected by various creditor groups, and their strategic priorities are yet to be clarified.

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