- Oct 7, 2005
- 104
- 11
May 29, 2008
Fitch Ratings on Thursday cut US Airways deeper into junk, citing the growing likelihood of a cash shortfall later this year or in early 2009 due to rising crude and jet fuel prices.
Fitch also said it revised its outlook on United Airlines to negative from stable, which means the likely direction for its rating over the next one or two years is down.
Both actions have been driven by deteriorating operating margins as US airlines struggle to cut costs after fuel prices have more than doubled since the start of 2007.
Fitch cut US Airways rating to "CCC," the eighth lowest junk rating, from "B-minus." The outlook is negative.
"Given the dramatic rise in energy prices and limits on the amount of additional domestic capacity that the airline can remove to respond to the fuel challenge, Fitch believes that the potential for a liquidity squeeze in late 2008 or early 2009 has increased significantly," the agency said.
The downgrade also reflects US Airways' limited flexibility in raising additional cash through asset sales or new financings, it added.
Rising crude oil and jet fuel prices will also put increasing pressure on United's profit margins and its ability to generate cash this year, potentially forcing the carrier to consider asset sales or new financing to shore up liquidity.
Fitch said each 10 cent increase in the average price of jet fuel increases US Airways' annual mainline operating costs by USD$120 million, and its cash position will erode by the first quarter unless fuel prices decline.
Fitch said US Airways had USD$2.1 billion of unrestricted cash and investments at the end of the first quarter. It also has a USD$1.6 billion secured term loan with a minimum liquidity covenant of USD$1.25 billion.
The rating agency said it could further downgrade US Airways in the coming months if a continuation of adverse fuel price trends and weak unit revenue growth increases the likelihood that the airline will breach its term loan liquidity covenant.
The chief executives of both carriers were expected to meet on Thursday to discuss progress in merger talks and address key issues, a source familiar with the matter said on Wednesday.
(Reuters)
May 30, 2008
United Airlines and US Airways said on Friday they would not merge, a decision that experts said effectively kills the chances of further US airline consolidation this year.
The two carriers, the second and sixth largest in the United States, declined to say exactly why they ended the talks that heated up last month after Delta Air Lines and Northwest Airlines said they would combine to create the world's largest airline.
After racking up USD$35 billion in losses and finally emerging from a five-year slump in 2006, record high fuel costs have plunged US airlines into a new crisis. Some industry leaders had hoped consolidation would lead to capacity cuts and fare increases as a way to offset fuel costs.
US Airways Chief Executive Doug Parker and UAL CEO Glenn Tilton announced their decision in separate messages to employees.
"After a considered review by our board of directors, United has determined that it will not be pursuing a merger at this time due to issues that could significantly dilute benefits from a transaction," Tilton said in the message.
Sources have said union opposition and integration costs torpedoed the deal. Others say UAL shied away from a merger because US Airways lacks a strong international presence.
"It just wasn't the scale of a deal that really solves the problems," airline consultant Robert Mann said, referring to excess capacity in the industry and the dire need for cost cuts and new revenue streams.
Despite mounting pressure to overhaul the industry, carriers are increasingly unlikely to attempt mergers ahead of a US presidential election for fear a new administration could get tougher on antitrust questions and reject some deals that might have got the blessing of the current government.
The whole process would also likely be slowed by related turnover in senior officials at the Department of Justice as they got to grips with the subject matter.
United, however, remains in the spotlight as speculation brews that it soon will announce a comprehensive alliance with Continental Airlines.
Tilton said on Friday that UAL is evaluating other options and would take steps to "size the business appropriately, leverage our capacity discipline to pass on commodity costs to customers and accelerate development of new revenue sources."
Tilton and Parker -- both vocal advocates for consolidation -- left the door open to future deals, but their decision not to proceed seems to erode the chances of broad industry consolidation in the near term.
"It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world with USD$130 a barrel oil prices," Parker said.
Merger speculation has been rampant since Delta and Northwest announced their deal in April. Nearly every possible combination of major airlines was discussed, but United remained front and center on reports that it sought a deal with Continental.
Attention shifted to US Airways as United's most likely merger partner, after Continental said it would not merge with United. Some experts believed a United/US Airways merger would prompt other mergers among the biggest airlines, although the only other two major airlines - American Airlines and Continental -- appear less inclined to merge than their rivals.
"If no one's going to initiate and push, then it's not going to happen," Mann said. "It appears that Parker is pushing, but it's like pushing rope. You have to have a partner that will pull."
(Reuters)
Fitch Ratings on Thursday cut US Airways deeper into junk, citing the growing likelihood of a cash shortfall later this year or in early 2009 due to rising crude and jet fuel prices.
Fitch also said it revised its outlook on United Airlines to negative from stable, which means the likely direction for its rating over the next one or two years is down.
Both actions have been driven by deteriorating operating margins as US airlines struggle to cut costs after fuel prices have more than doubled since the start of 2007.
Fitch cut US Airways rating to "CCC," the eighth lowest junk rating, from "B-minus." The outlook is negative.
"Given the dramatic rise in energy prices and limits on the amount of additional domestic capacity that the airline can remove to respond to the fuel challenge, Fitch believes that the potential for a liquidity squeeze in late 2008 or early 2009 has increased significantly," the agency said.
The downgrade also reflects US Airways' limited flexibility in raising additional cash through asset sales or new financings, it added.
Rising crude oil and jet fuel prices will also put increasing pressure on United's profit margins and its ability to generate cash this year, potentially forcing the carrier to consider asset sales or new financing to shore up liquidity.
Fitch said each 10 cent increase in the average price of jet fuel increases US Airways' annual mainline operating costs by USD$120 million, and its cash position will erode by the first quarter unless fuel prices decline.
Fitch said US Airways had USD$2.1 billion of unrestricted cash and investments at the end of the first quarter. It also has a USD$1.6 billion secured term loan with a minimum liquidity covenant of USD$1.25 billion.
The rating agency said it could further downgrade US Airways in the coming months if a continuation of adverse fuel price trends and weak unit revenue growth increases the likelihood that the airline will breach its term loan liquidity covenant.
The chief executives of both carriers were expected to meet on Thursday to discuss progress in merger talks and address key issues, a source familiar with the matter said on Wednesday.
(Reuters)
May 30, 2008
United Airlines and US Airways said on Friday they would not merge, a decision that experts said effectively kills the chances of further US airline consolidation this year.
The two carriers, the second and sixth largest in the United States, declined to say exactly why they ended the talks that heated up last month after Delta Air Lines and Northwest Airlines said they would combine to create the world's largest airline.
After racking up USD$35 billion in losses and finally emerging from a five-year slump in 2006, record high fuel costs have plunged US airlines into a new crisis. Some industry leaders had hoped consolidation would lead to capacity cuts and fare increases as a way to offset fuel costs.
US Airways Chief Executive Doug Parker and UAL CEO Glenn Tilton announced their decision in separate messages to employees.
"After a considered review by our board of directors, United has determined that it will not be pursuing a merger at this time due to issues that could significantly dilute benefits from a transaction," Tilton said in the message.
Sources have said union opposition and integration costs torpedoed the deal. Others say UAL shied away from a merger because US Airways lacks a strong international presence.
"It just wasn't the scale of a deal that really solves the problems," airline consultant Robert Mann said, referring to excess capacity in the industry and the dire need for cost cuts and new revenue streams.
Despite mounting pressure to overhaul the industry, carriers are increasingly unlikely to attempt mergers ahead of a US presidential election for fear a new administration could get tougher on antitrust questions and reject some deals that might have got the blessing of the current government.
The whole process would also likely be slowed by related turnover in senior officials at the Department of Justice as they got to grips with the subject matter.
United, however, remains in the spotlight as speculation brews that it soon will announce a comprehensive alliance with Continental Airlines.
Tilton said on Friday that UAL is evaluating other options and would take steps to "size the business appropriately, leverage our capacity discipline to pass on commodity costs to customers and accelerate development of new revenue sources."
Tilton and Parker -- both vocal advocates for consolidation -- left the door open to future deals, but their decision not to proceed seems to erode the chances of broad industry consolidation in the near term.
"It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world with USD$130 a barrel oil prices," Parker said.
Merger speculation has been rampant since Delta and Northwest announced their deal in April. Nearly every possible combination of major airlines was discussed, but United remained front and center on reports that it sought a deal with Continental.
Attention shifted to US Airways as United's most likely merger partner, after Continental said it would not merge with United. Some experts believed a United/US Airways merger would prompt other mergers among the biggest airlines, although the only other two major airlines - American Airlines and Continental -- appear less inclined to merge than their rivals.
"If no one's going to initiate and push, then it's not going to happen," Mann said. "It appears that Parker is pushing, but it's like pushing rope. You have to have a partner that will pull."
(Reuters)