Markets & Finance

AMR Ratings Put on CreditWatch Negative


On Jan. 22, 2003, Standard & Poor's placed its 'BB-' corporate credit ratings and other ratings (see list below) for AMR Corp. (AMR) and subsidiary American Airlines Inc. on CreditWatch with negative implications, reflecting continuing heavy losses and diminishing sources of backup liquidity as available collateral is used for borrowings.

AMR reported a net loss of $529 million in the fourth quarter of 2002, a decline from the $734 million net loss, before special items, in the prior-year period, and a full-year 2002 net loss of $3.5 billion ($2.0 billion before special items), an increase from the $1.4 billion net loss, before special items, in 2001.

The CreditWatch placement reflects AMR's continuing heavy losses, described by the company's CEO as "unsustainable," and the gradual exhaustion of its sources of backup liquidity. While near-term cash liquidity remains adequate, American Airlines faces the potential acceleration of over $800 million of bank debt due to likely covenant violations by June 30, 2003, and has used up most of its readily financeable collateral borrowing to cover cash losses.

American is in talks with its unions about contract revisions to reduce labor costs, and hopes to accelerate those negotiations in view of the company's financial situation. Any war between the U.S. and Iraq, a prospect that has already raised airline fuel prices, would likely cause a further erosion of revenues, widening the company's losses. AMR also reported that it had taken a $1.1 billion after-tax charge directly to equity to reflect pension underfunding, a move in line with those reported thus far by several other large, high-cost U.S. airlines.

Standard & Poor's will review AMR's financial and liquidity outlook, and ongoing measures to stem its losses to resolve the CreditWatch.

Ratings placed on Credit Watch with negative implications

AMR Corp.

Category

Rating

Corporate credit rating

BB-

Senior unsecured debt

B

Senior secured debt

BB-

American Airlines Inc.

Category

Rating

Corporate credit rating

BB-

Senior secured debt

BB-

Equipment trust certificates

BB+

Pass through cert., series 1999-1A

AA

Pass through cert., series 1999-1B

A-

Pass through cert., series 1999-1C

BBB

Pass through cert., series 2001-1A1

A

Pass through cert., series 2001-1A2

A+

Pass through cert., series 2001-1B

BBB

Pass through cert., series 2001-1C

BB

Pass through cert., series 2001-1D

BB-

Pass through cert., series 2001-2A

AA

Pass through cert., series 2001-2B

A+

Pass through cert., series 2001-2C

A-

Pass through cert., series 2002-1C

BBB+


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