Fitch sees further US airline consolidation as a "necessary" step

Fitch Ratings published (13-Apr-2010) the Spring 2010 issue of Airline Credit Navigator, providing an overview of recent financial and credit quality trends in the US airline industry. Key points include: [more]

• US carriers can at last poin to clear signs of recovery in cash flow generation and balance sheet health following two years of extreme operating pressure in 2008 and 2009;
• US airline management teams remain cautious over capacity growth this year;
• Fitch will focus primarily on the free cash flow generation performance of US carriers as the recovery takes hold in 2010. This is due to the "urgent importance" of balance sheet de-leveraging through the next industry demand cycle as the key to ratings improvement;
• US legacy carriers generally face heavy debt maturities/rising cash pension funding obligations that will not be funded entirely out of internal cash flow, even if a solid global recovery takes shape;
• Renewed speculation surrounding potential mergers and industry consolidation reflects the "notable improvements in the industry operating outlook and the long-term logic of increased concentration in a largely commoditised industry that remains vulnerable to external demand and fuel price shocks";
• Fitch continues to see further industry consolidation as "a necessary and inevitable part of the US airline industry's effort to ensure more durable financial profiles through economic cycles".