Moody''s Cuts AMR, American Deep Into Junk


Aug 20, 2002
Moody''s Cuts AMR, American Deep Into Junk
Monday February 10, 4:14 pm ET
NEW YORK (Reuters) - Moody''s Investors Service on Monday cut its ratings for American Airlines Inc. and parent AMR Corp. deeper into junk status after the world''s largest airline asked unions and other workers for $1.8 billion in annual cost cuts to avoid possible bankruptcy
Moody''s said it expects AMR (NYSE:AMR - News), which lost a record $3.5 billion last year, to suffer more losses absent significant cost-cutting. The downgrades might make it more difficult or costly for AMR, based in Fort Worth, Texas, to raise new capital or manage its $13 billion debt load.
Moody''s cut AMR''s senior implied rating two notches to B3 from B1, and AMR''s and American Airlines'' senior unsecured rating three notches to Caa2, its fourth-lowest grade, from B2. It also downgraded AMR debt secured by aircraft, and cut AMR''s liquidity rating to its lowest level.
Richard Bittenbender, a Moody''s vice president, wrote that American, despite having $2.8 billion of cash, has suffered a pronounced reduction in financial flexibility as its cost structure remains high.
He said the company has limited financial resources and potential to boost revenue and might be hurt if U.S. military actions or other national security events cause people to travel less. The company has about $500 million of debt maturing in the next year, he said.
American on Feb. 4 asked for the $1.8 billion in cost savings in what it called a last resort to turn itself around.
Analysts have said the risk that American might soon follow UAL Corp.''s (NYSE:UAL - News) United Airlines and US Airways Group Inc. (OTC BB:UAWGQ.OB - News) into bankruptcy has increased considerably as it burns through $5 million per day. AMR''s $3.5 billion fiscal 2002 net loss is the biggest in aviation history.