US Airways' debt rating cut by Standard & Poor's

Airline, parent face further downgrades

January 10, 2004|By NEW YORK TIMES NEWS SERVICE

US Airways, which its chairman has said is in danger of defaulting on $900 million in government-backed loans, had its debt rating lowered yesterday by Standard & Poor's Ratings Services because of concerns about growing competition from low-fare competitors.

S&P also kept US Airways and its corporate parent, US Airways Group Inc., on CreditWatch Negative, meaning that the airline's debt could be downgraded again in the near future.

The downgrade - to B-minus from B, both well below investment grade - capped a bleak week for the nation's seventh-largest airline, which has encountered financial turbulence since emerging from Chapter 11 bankruptcy protection in April.

On Thursday, Chairman David G. Bronner confirmed that the airline had retained Morgan Stanley to seek potential buyers for some of its biggest assets. Among the assets the airline is considering putting up for sale is its East Coast shuttle, a regional carrier, and one of its three hubs in Philadelphia, Pittsburgh or Charlotte, N.C.

Bronner, who is also chief executive of the Retirement Systems of Alabama, a large pension fund that is the airline's largest shareholder, said that US Airways was in danger of defaulting on the covenants of its federally guaranteed loans.

The loans, which were awarded by the Air Transportation Stabilization Board last spring, were the centerpiece of a $1 billion restructuring plan.

If US Airways fails to comply with its loan covenants, it would mark the first time a major airline reneged on its commitments to the loan board, which was formed after the Sept. 11, 2001, terrorist attacks to administer bailouts to the nation's airlines. Bronner has pledged that the Arlington, Va.-based airline would avoid that fate.

However, the airline must cut $200 million to $300 million in costs, or raise an equivalent amount of cash, in the next 60 days to 90 days.

The rating reflected the airline's "weak financial profile, vulnerability to increasing competition from low-cost airlines, and a relatively limited route structure," said Philip Baggaley, Standard & Poor's airline analyst.

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