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Rating Action:

Moody's affirms the B2 CFR of American Airlines Group; changes outlook to stable

11 Nov 2021

New York, November 11, 2021 -- Moody's Investors Service ("Moody's) affirmed most of its ratings of American Airlines Group Inc. ("Parent") and American Airlines, Inc. ("American"), including the B2 corporate family rating ("CFR"), B2-PD probability of default rating and the Ba3 senior secured and Caa1 senior unsecured ratings. In addition, Moody's affirmed the Ba2 ratings assigned to the senior secured debt of AAdvantage Loyalty IP Ltd. Moody's also upgraded the speculative grade liquidity rating to SGL-2 from SGL-3 and changed the rating outlook to stable from negative.

With respect to the ratings of American's enhanced equipment trust certificates ("EETCs"), Moody's affirmed its ratings assigned to all but three Class B tranches and one Class A tranche. The ratings on these four EETCs were each downgraded one notch (see debt list).

The affirmation of the B2 CFR and change in outlook to stable reflect Moody's expectations for improving operating performance and financial results over the next 12 to 24 months as passenger demand continues to recover. The actions also reflect American's good liquidity which will allow it to absorb any unanticipated setbacks in the recovery's trajectory. Moody's expects a meaningful improvement in operating cash flow in 2022 and positive free cash flow in 2023, which will help preserve cash and short-term investments above $9 billion over the next 24 months. Leverage will improve through earnings growth and debt repayment. American will repay about $6.5 billion of debt via amortization between Q4 2021 and the end of 2023. However, reported debt will only decline by about $4 billion over this period as Moody's believes American will finance some of its aircraft deliveries with new debt, including the $960 million Series 2021-1 EETC issued in October.

The downgrades of the four EETCs reflect larger declines in the equity cushions for the respective tranches relative to the remainder of the company's outstanding EETCs.

Upgrades:

..Issuer: American Airlines Group Inc.

.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

Affirmations:

..Issuer: American Airlines Group Inc.

.... Corporate Family Rating, Affirmed B2

.... Probability of Default Rating, Affirmed B2-PD

.... Gtd. Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Affirmations:

..Issuer: AAdvantage Loyalty IP Ltd.

.... Gtd. Senior Secured First Lien Term Loan, Affirmed Ba2 (LGD2)

.... Gtd. Senior Secured Regular Bond/Debenture, Affirmed Ba2 (LGD2)

..Issuer: American Airlines, Inc.

....Gtd. Senior Secured Regular Bond/Debenture, Affirmed Ba3 (LGD2 from LGD3)

....Senior Secured Revolving Credit Facility, Affirmed Ba3 (LGD2 from LGD3)

....Senior Secured Term Loan, Affirmed Ba3 (LGD2 from LGD3)

....Senior Secured Enhanced Equipment Trust, Affirmed Ba2

....Senior Secured Enhanced Equipment Trust, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust, Affirmed Baa3

..Issuer: US Airways, Inc.

....Senior Secured Enhanced Equipment Trust, Affirmed Ba1

....Senior Secured Enhanced Equipment Trust, Affirmed Ba3

....Senior Secured Enhanced Equipment Trust, Affirmed Ba2

Downgrades:

..Issuer: American Airlines, Inc.

....Senior Secured Enhanced Equipment Trust Ser. 2015-2 Cl. B due September 22, 2023, Downgraded to Ba3 from Ba2

....Senior Secured Enhanced Equipment Trust Ser. 2016-1 Cl. B due January 15, 2024, Downgraded to Ba3 from Ba2

....Senior Secured Enhanced Equipment Trust Ser. 2016-2 Cl. B due June 15, 2024, Downgraded to Ba3 from Ba2

Downgrades:

..Issuer: US Airways, Inc.

....Senior Secured Enhanced Equipment Ser. 2012-2 Cl. A due June 3, 2025, Downgraded to Ba2 from Ba1

Outlook Actions:

..Issuer: American Airlines Group Inc.

....Outlook, Changed To Stable From Negative

..Issuer: AAdvantage Loyalty IP Ltd.

....Outlook, Changed To Stable From Negative

..Issuer: American Airlines, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The B2 CFR reflects Moody's expectations that American's adjusted debt/EBITDA will remain high, between 5x and 6x through 2023, despite the recovery of EBITDA towards 2019's $8.4 billion (Moody's adjusted basis) or better. While American removed $1.3 billion of run rate costs from its operations since the start of the pandemic, Moody's expects recent inflationary cost pressures across the industry to continue. Strong pent up demand for travel and loosening travel restrictions globally will promote pricing power; however, risk remains in accurately projecting airline unit revenues and operating cash flow at this stage of the recovery from the pandemic. A fulsome recovery of operating profits will likely face some obstacles along the way, including the potential for disruptions to operations because of staffing issues, particularly during the upcoming holiday season. Prior to the pandemic, American had the highest financial leverage of any major airline at the end of 2019, with debt/EBITDA of 4.7x, and had materially less operating cash flow relative to its closest peers. Moody's estimates adjusted debt at about $53 billion at the end of 2021, including $38 billion of reported debt. Moody's believes that some portion of the $13.6 billion of contractual debt repayments scheduled across 2024 and 2025 will require refinancing, which will prevent further meaningful deleveraging below 5x beyond 2023.

The B2 CFR also reflects American's scale and competitive position as one of the world's largest airlines based on revenue. Moody's expects American and its oneworld partner, British Airways, Plc to retain their leading market position on routes between New York and London Heathrow as international travel ramps up. Moody's expects that international travel will ramp up substantially following the opening of the US to vaccinated, non-US citizens on November 8th. The Northeast Alliance with JetBlue and its partnerships with Alaska Airlines and Brazil's Gol Linhas should also provide incremental earnings expansion for American.

The Ba2 rating assigned to the AAdvantage loyalty financing reflects the importance of the loyalty program to American's franchise, operations and cash flows. In Moody's opinion, this lowers the probability of default of the financing relative to that of American's other senior secured obligations rated Ba3. The program's cash flows have demonstrated resilience through the pandemic and will remain sufficient to meet the transaction's debt service obligations.

The SGL-2 speculative grade liquidity rating reflects a good liquidity profile. Cash and short-term investments of $14.5 billion, projected operating cash flow of more than $3 billion in 2022, and $2.8 billion of fully available revolvers support the company's liquidity. Additionally, on July 22, 2021, the company disclosed upwards of $12 billion of appraised value of unencumbered assets and additional debt capacity on existing debt facilities.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if Moody's expects operating cash flow in 2022 to remain below $1.5 billion, if cash approaches $6 billion or cash plus revolver availability falls below $8 billion or EBIT margin or debt/EBITDA in 2023 remain below 7.5% and above 6.5x, respectively. The ratings could be upgraded if EBITDA margins exceed 15%, debt-to-EBITDA will be sustained below 5x and funds from operations plus interest-to-interest approaches 4x.

Any combination of future changes in the underlying credit quality or ratings of American, Moody's opinion of the importance of particular aircraft to American's network, or in Moody's estimates of aircraft market values which will affect estimates of loan-to-value, can result in changes to EETC ratings.

The methodologies used in these ratings were Passenger Airlines published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277191 and Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125852. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

American Airlines Group Inc. is the holding company for American Airlines, Inc. Together with regional partners, operating as American Eagle, the airlines operated an average of nearly 6,800 flights per day to more than 365 destinations in 61 countries before the coronavirus pandemic. The company reported $20.455 billion of revenue for the first nine months of 2021, up from $13.309 billion for the same period in 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jessica Gladstone, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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