Fitch Ratings has revised its Outlook for American Airlines (American) to Stable from Negative and affirmed its Long-Term Issuer Default Rating at 'B-'.
Fitch states that the Outlook revision reflects the company's strong liquidity position along with rebounding passenger traffic in the US, which together decreases the likelihood of a downgrade into the 'CCC' category. Meanwhile, the rollout of multiple effective coronavirus vaccines has increased Fitch's confidence in a meaningful rebound in air travel in 2021, lowering the likelihood that American will continue to burn cash for a prolonged period.
American's 'B-' rating reflects material risks that remain for the airline industry. Air traffic remains well below pre-pandemic levels and the pace of recovery continues to remain uncertain as international travel restrictions and limited business travel are expected to weigh on traffic and yields well into next year at least. Substantial debt burdens and rising fuel prices are also concerns, says the rating agency.
Separately, Fitch has assigned a rating of 'B/RR3' to American's proposed series of special facility revenue bonds.
American plans to issue $150 million in revenue bonds to fund an upcoming $47.8 million maturity in August of this year, to defease a portion of a bond due in 2031, and to fund ongoing construction. American initially issued its JFK revenue bonds in 2016. The bonds have varying maturities between August of this year and 2031. The JFK bonds are secured by a mortgage on American's leasehold interest in Terminal 8 at New York's JFK Airport. The 'RR3' rating on the JFK bonds, in line with American's other secured debt, reflects the strategic importance of American's position at JFK. The airport acts as a key international gateway for American.
JFK is a slot-constrained airport; slots, gates and terminal space are highly sought after by airlines looking to maintain a presence in the key New York market. As such, Fitch believes that American would have a material incentive to affirm its lease at JFK in the event that it was to enter bankruptcy as it did during its 2011 bankruptcy proceedings.