Why Wall St. Hates Credit Rating Agencies: S&P May Downgrade Airlines (AMR)(CAL)(DAL)(UAUA)(NWA)
Based on several pieces of analysis, the US airline industry will lose over $7 billion this year. If jet fuel stays high and a recession cuts passenger counts, the figure could go much higher. Several major airlines, particularly AMR (AMR),…
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Based on several pieces of analysis, the US airline industry will lose over $7 billion this year. If jet fuel stays high and a recession cuts passenger counts, the figure could go much higher.
Several major airlines, particularly AMR (AMR), trade near liquidation value. The company’s market cap is now 7% of total revenue. Numbers at Delta (DAL) and United (UAUA) are not much better.
In a call which could not even be called "better late than never", S&P has put a number of airlines on its watch list and may downgrade them. The agency even thinks one or more carriers could turn to Chapter 11. According to The New York Times, A senior credit analyst with S.& P., Philip A. Baggaley, said the action was taken because of “potential severe financial damage” that could result from record fuel prices.
To put that another way, S&P has not even downgraded the carriers yet, It is simply looking at that possibility.
With substantial debt loads, the first big airline bankruptcy could be less than a quarter away. Several small carriers have already filed Chapter 11. American is cutting its capacity by 12% and taking a number of older planes out of service. Thousand of people could lose jobs.
S&P may see several airlines fail financially before its changes its ratings.
Douglas A. McIntyre
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.