Moody's cuts debt rating for struggling USAir

April 07, 1994|By Bloomberg Business News

NEW YORK -- Moody's Investors Service Inc. yesterday cut its debt rating for USAir, which led the domestic airline industry in losses last year.

Moody's said it lowered USAir's senior unsecured rating to B2 from Ba3 and the preferred stock rating for its parent company, USAir Group Inc., to Caa from B3.

The action follows similar ratings cuts by Standard & Poor's Corp. last month.

The ratings were cut because USAir, the largest carrier operating at Baltimore-Washington International Airport, is expected to face intense price competition in its main markets, which will impede the carrier's efforts to return to profitability, Moody's said.

In the past year, USAir, based in Arlington, Va., has faced mounting competition along its stronghold on the East Coast. Southwest Airlines Co. began service at BWI to Chicago and Cleveland, forcing USAir to match its drastically lower fares.

In addition, Continental Airlines Inc. has switched to its new "Cal Lite" service on many East Coast flights. Cal Lite offers lowers fares on some short-haul routes.

USAir also has been doing battle with several new start-up airlines in the East, which are undercutting larger airlines on ticket prices.

To compete, USAir has lowered its own fares on many prime routes and has asked its unions for wage concessions. The carrier also hopes to lower costs on short-haul routes by reducing the amount of time its airplanes spend at the gate.

Like most airlines, USAir's operating revenues were crimped by a series of winter storms, which forced it to cancel flights.

The carrier already has said it expects to report a loss of about $200 million for the first quarter, meaning it probably will end this year further in the red than in 1993, when it posted a $355 million deficit.

The trade publication Commercial Aviation Report said in its April 1 issue that if USAir can't renegotiate its $300 million revolving credit agreement, some industry analysts think it could face bankruptcy as early as June.

USAir already is in violation of the net worth covenants on the credit agreement, and it can't draw on the facility until new waivers are granted by the lenders.

USAir isn't likely to attract new credit sources until it stabilizes its operating results, Moody's said.

The carrier also can't hope for much help from its international affiliate, British Airways PLC.

British Airways invested $400 million in USAir Group in exchange for 24.6 percent of the carrier's voting stock, but the London-based airline said it won't increase that investment until USAir takes more steps to cut its losses.

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