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Rating Action:

Moody's: American Airlines Group outlook changed to positive; B1 CFR affirmed

24 Feb 2015
NOTE: On April 7, 2015, the press release was corrected as follows: in the first sentence of the second paragraph of the Ratings Rationale section, “AWA: 2001-1” was changed to “AWA: 1998-1.”

New York, February 24, 2015 -- Moody's Investors Service has changed its rating outlook on American Airlines Group, Inc. ("AAG") to positive from stable, upgraded four of the company's Enhanced Equipment Trust Certificates ("EETCs"), and affirmed all other ratings including the B1 Corporate Family Rating ("CFR").

RATINGS RATIONALE

The positive outlook reflects Moody's expectation of improving operating profit and free cash flow in 2015 because of the sharp drop in the cost of jet fuel, leading to significantly stronger credit metrics. Moody's anticipates Debt to EBITDA of less than four times and EBIT to Interest approaching five times at the end of 2015, using an average fuel price assumption of $1.97 per gallon. "The positive outlook balances the expected improvement in metrics this year against the potential for fuel prices to retrace their recent decline, the uncertainty of how much of the aircraft order book will be funded with new debt and risk in the integration of the operating systems of American Airlines and US Airways," said Senior Credit Officer, Jonathan Root. "Using debt to fund about 50% or more of the about $5.0 billion of annual aircraft capital expenditures while producing meaningful free cash flow would forego opportunities to strengthen the balance sheet to help contain future increases in leverage when the cost of jet fuel increases or during troughs in passenger demand,' continued Root. Nevertheless, the positive outlook contemplates that the combination of AAG's leading market position, the potential for fuel costs to remain below their 2014 peak level through 2016 and the company's very good liquidity can mitigate increases in funded debt and integration risks, such that credit metrics can remain supportive of a Ba rating beyond 2015.

The upgrades of the three A-tranche EETCs (AWA: 1998-1, US Airways: 2000-2 and 2000-3) reflect growing equity cushions of these transactions in the next 15 months to above 60% based on Moody's estimates of loan-to-values and continuing relevance of the respective aircraft collateral to the combined operation. AAG will retrofit the cabins of each of the A319s in each of these transactions as part of a $2.0 billion Customer Improvements program announced this past December. The fourth EETC upgrade in this action, American Airlines Series 2011-1 B-tranche to Ba1 from Ba2, levels the rating of this tranche with the ratings of other of the company's B-tranches with similar LTVs. The Boeing B737-800 and B777-200ER aircraft in this transaction will also remain core to the company's network over the remaining life of this transaction.

The ratings could be upgraded if the company sustains unrestricted cash (excluding cash in Venezuela) above $6.0 billion while the merger integration is ongoing. Metrics, such as Debt to EBITDA approaching 4.0 times, EBIT to Interest of about 3.0 times, an EBITDA margin of about 20% and / or Retained Cash Flow to Net Debt that approaches 20% could support an upgrade of the ratings. Conservative allocation of free cash flow to shareholders that facilitates more measured debt issuance, be it for funding aircraft capital expenditures or for general corporate purposes will be an important consideration for any possible rating upgrade. A negative rating action could follow if unrestricted cash fell below $4.0 billion. The inability to control non-fuel operating costs or to sustain competitive yields, either of which would challenge the company to maintain its operations over the long-term could also lead to a downgrade. Debt to EBITDA that approaches 6.5 times, EBIT to Interest that approaches 1.5 times or an EBITDA margin that approaches 17% or sustained negative free cash flow generation could pressure the ratings.

American Airlines Group ("AAG") is the holding company for American Airlines, Inc. and US Airways, Inc. Together with American Eagle and US Airways Express, these airlines operate an average of nearly 6,700 flights per day to 339 destinations in 54 countries from their hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. With annual revenue of more than $42 billion, AAG is the largest passenger airline in the world, measured by annual revenues.

Upgrades:

..Issuer: America West Airlines, Inc.

....Series 1998-1A Tranche Enhanced Equipment Trust, Upgraded to Baa1 from Baa2

..Issuer: American Airlines, Inc.

....Series 2011-1B Tranche Enhanced Equipment Trust, Upgraded to Ba1 from Ba2

..Issuer: US Airways, Inc.

....Series 2000-2G Tranche Enhanced Equipment Trust, Upgraded to Baa1 from Baa3

....Series 2000-3G Tranche Enhanced Equipment Trust, Upgraded to Baa1 from Baa3

Affirmations:

..Issuer: America West Airlines, Inc.

....Series 1999-1G Tranche Enhanced Equipment Trust, Affirmed Baa3

....Series 2000-1G Tranche Enhanced Equipment Trust, Affirmed Baa3

....Series 2001-1G Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 1998-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

..Issuer: American Airlines Group Inc.

.... Probability of Default Rating, Affirmed B1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

.... Corporate Family Rating, Affirmed B1

.... Senior Unsecured Regular Bond/Debenture Oct 1, 2019, Affirmed B3 (LGD5)

..Issuer: American Airlines, Inc.

....Senior Secured Bank Credit Facilities Oct 10, 2019, Affirmed Ba2 (LGD2)

....Series 2001-1A Tranche Enhanced Equipment Trust, Affirmed B2

....Series 2011-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 2001-1B Tranche Enhanced Equipment Trust, Affirmed Caa3

....Series 2001-1C Tranche Enhanced Equipment Trust, Affirmed Caa3

..Issuer: Hillsborough County Aviation Authority, FL

....Senior Secured Revenue Bonds Jan 15, 2022, Affirmed B3 (LGD5)

..Issuer: Indianapolis Airport Authority, IN

....Revenue Bonds Jul 1, 2019, Affirmed B3 (LGD5)

..Issuer: Pennsylvania Economic Dev. Fin. Auth.

....Senior Unsecured Revenue Bonds, Affirmed B3 (LGD5)

..Issuer: Phoenix Industrial Development Authority, AZ

....Senior Unsecured Revenue Bonds Apr 1, 2023, Affirmed B3 (LGD5)

....Senior Unsecured Revenue Bonds Jun 1, 2019, Affirmed B3 (LGD5)

..Issuer: Port Authority of New York and New Jersey

....Revenue Bonds Dec 1, 2015, Affirmed B3 (LGD 5)

..Issuer: US Airways Group, Inc.

....Multiple Seniority Shelf May 24, 2015, Affirmed (P)B3

....Senior Unsecured Regular Bond/Debenture Jun 1, 2018, Affirmed B3 (LGD5)

..Issuer: US Airways, Inc.

....Senior Secured Bank Credit Facilities Affirmed Ba2 (LGD2)

....Series 1998-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 1999-1A and A2 Tranches Enhanced Equipment Trusts, Affirmed Baa1

....Series 2001-1G Tranche Enhanced Equipment Trust, Affirmed Baa2

....Series 2010-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 2011-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 2012-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 2012-2A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 2013-1A Tranche Enhanced Equipment Trust, Affirmed Baa1

....Series 1998-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 1999-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 2010-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 2011-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 2012-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 2012-2B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 2013-1B Tranche Enhanced Equipment Trust, Affirmed Ba1

....Series 1998-1C Tranche Enhanced Equipment Trust, Affirmed B1

....Series 1999-1C Tranche Enhanced Equipment Trust, Affirmed Ba3

....Series 2000-3C Tranche Enhanced Equipment Trust, Affirmed B2

....Series 2001-1C Tranche Enhanced Equipment Trust, Affirmed Ba3

....Series 2012-1C Tranche Enhanced Equipment Trust, Affirmed B1

....Series 2012-2C Tranche Enhanced Equipment Trust, Affirmed B1

Outlook Actions:

..Issuer: America West Airlines, Inc.

....Outlook, Changed To Positive From Stable

..Issuer: American Airlines Group Inc.

....Outlook, Changed To Positive From Stable

..Issuer: American Airlines, Inc.

....Outlook, Changed To Positive From Stable

..Issuer: US Airways Group, Inc.

....Outlook, Changed To Positive From Stable

..Issuer: US Airways, Inc.

....Outlook, Changed To Positive From Stable

The methodologies used in these ratings were Global Passenger Airlines published in May 2012 and Enhanced Equipment Trust And Equipment Trust Certificates published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: American Airlines Group outlook changed to positive; B1 CFR affirmed
No Related Data.
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