Here is a more complete report:
S&P cuts US Airways ratings, outlook is negative
Wednesday May 5, 12:22 pm ET
(The following statement was released by the rating agency)
NEW YORK, May 5 - Standard & Poor's Ratings Services said today it lowered its ratings on US Airways Group Inc. and its US Airways Inc. subsidiary, including lowering the corporate credit ratings to 'CCC+' from 'B-', and removed all ratings from CreditWatch, where they were placed on Dec. 10, 2003. The rating outlook is negative.
"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," said Standard & Poor's credit analyst Philip Baggaley. The company is seeking further major cost-saving concessions from its labor groups, who already took pay cuts in 2002 and 2003, and failure to conclude those negotiations successfully over the next several quarters could force US Airways to undertake significant asset sales and/or file for bankruptcy a second time. During this process there is also some risk that US Airways will, as part of its overall restructuring, seek to renegotiate public debt obligations. Near-term liquidity is adequate, with $978 million of unrestricted cash at March 31, 2004.
Ratings on US Airways Inc.'s various enhanced equipment trust certificates, excepting those that are insured, were lowered, as well. Downgrades were in most cases more extensive than the one-notch downgrade of US Airways' corporate credit rating, reflecting decreased confidence that the airline would be able to reorganize successfully if it were to enter a second bankruptcy proceeding. These obligations are, however, backed by modern technology Airbus aircraft that are considered good collateral.
On April 19, 2004, president and CEO David Siegel resigned and was succeeded by a member of the company's board of directors, Bruce Lakefield. Siegel's resignation was apparently due in part to unwillingness of the airline's unions to consider further labor cost concessions without a change in senior management. The turnaround plan being pursued by the new CEO appears to be broadly similar to that sought by his predecessor, and includes, in addition to cost cuts, changes in the airline's strategy and operations. Long-term prospects for US Airways remain difficult, given the company's limited route network and increasing exposure to low-cost competition. Accordingly, acquisition by another airline or some other form of close integration into a broader alliance remains the best ultimate solution for US Airways.
Ratings anticipate that US Airways will succeed in securing material labor cost concessions, and that it will retain access to committed financing for most or all of its planned deliveries of regional jets. Failure to achieve these, or a deterioration in financial results, could prompt a further downgrade.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search.
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