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Rating Action:

Moody's changes outlook of Delta Air Lines to positive, affirms B1 CFR

05 Dec 2013

New York, December 05, 2013 -- Moody's Investors Service has affirmed the B1 Corporate Family and B1-PD Probability of Default ratings assigned to Delta Air Lines, Inc. and has changed the ratings outlook to positive from stable. Moody's also affirmed the Ba1 rating assigned to the company's senior secured bank credit facilities, the B2 senior unsecured rating assigned to certain of the company's industrial revenue bonds and the respective ratings assigned to each tranche of the company's Enhanced Equipment Trust Certificates. The Speculative Grade Liquidity rating was changed to SGL-1 from SGL-2.

The positive outlook considers the improvements in operating margin and credit metrics that Delta has achieved in 2013 and anticipates that the company can carry the favorable momentum into 2014. Moody's maintains a stable outlook on the global passenger airline sector and believes that Delta is well-positioned to further strengthen its credit metrics as it marches towards its current Adjusted Net Debt target of $7.0 billion by 2017. The company maintains a yield advantage versus its closest peers, United Continental Holdings, Inc. and the soon to be formed American Airlines Group, Inc. Moody's believes that the three players will compete for leadership in yields via the networks and schedules they craft and by running a good operation to attract more high-value corporate customers, which allays fears of increasing competition based on lower fares.

RATINGS RATIONALE

The B1 corporate family rating reflects Delta's leading position in the global passenger airline sector, its steady earnings and free cash flow generation and its track record for achieving its prior net debt target of $10 billion. Moody's believes that Delta will modestly increase profitability in 2014, with steady but slow growth in demand because of ongoing global macroeconomic headwinds including the impact from sequestration in the U.S., ongoing fiscal and economic challenges in Europe and the weak yen in Japan. Steady demand in premium cabins, ongoing industry capacity discipline, particularly on highly competitive trans-Atlantic routes and Delta's focus on growing ancillary revenues should help unit revenues keep pace with growth in unit costs. Good liquidity, in excess of $5 billion including revolving credit facilities that impose no conditions for drawings and a manageable maturity profile support the B1 rating. The ratings also consider the benefits the global route network should provide in periods of improving demand, anticipated free cash flow as annual capital expenditures for aircraft are relatively modest and that pressure on labor and other non-fuel costs will remain manageable after the outsized increase in pilot pay in 2013 pursuant to the terms of the contract agreed in 2012.

The change of the SGL rating reflects Moody's view that the about $5.0 billion of liquidity and anticipated free cash flow of about $2.0 billion provides the company very good liquidity.

The ratings could be upgraded if Delta continues to strengthen its credit metrics while funding deliveries from the order for 100 Boeing B737-900ERs; the first delivery which occurred in September 2013. Debt to EBITDA expected to approach 4.5 times, Funds from Operations + Interest to Interest that approaches 4.0 times and or an EBITDA margin sustained around 18% could support an upgrade. Meaningful amounts of annual free cash flow while funding deliveries of new aircraft including one or more potential additional orders for wide-body aircraft that Moody's believes Delta might place could also lead to an upgrade as would no meaningful increase in the annual amount of cash returned to shareholders. The outlook could be returned to stable if Delta was unable to sustain its EBITDA margin, possibly because of inflation in non-fuel costs and or setting capacity too high such that yields decline in periods when passenger demand waivers. An EBITDA margin that approached 15% or a sustained decline in unrestricted cash to below $2.7 billion would be indicators of a negative shift in the company's credit profile. While not expected, a sustained decline in demand that led to declines in yields of more than 8% with no corresponding offsets to costs, possibly from a commensurate decline in the cost of fuel, could also pressure the ratings as could aggregate liquidity (including availability on revolving credit facilities) of less than $4.5 billion. Debt to EBITDA that approaches 6.5 times or Funds from Operations + Interest to Interest that approaches 2.3 times could pressure the rating.

The principal methodology used in this rating was the Global Passenger Airlines published in May 2012 and the 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.

Delta Air Lines, Inc., headquartered in Atlanta, Georgia, is the world's second largest airline, providing scheduled air transportation for passengers and cargo throughout the U.S. and around the world.

Ratings:

..Issuer: Delta Air Lines, Inc.

.... Speculative Grade Liquidity Rating, Changed to SGL-1 from SGL-2

Outlook Actions:

..Issuer: Delta Air Lines, Inc.

....Outlook, Changed To Positive From Stable

..Issuer: Delta Air Lines, Inc. (Old)

....Outlook, Changed To Positive From Stable

..Issuer: Northwest Airlines, Inc.

....Outlook, Changed To Positive From Stable

Affirmations:

..Issuer: Clayton County Development Authority, GA

....Senior Unsecured Revenue Bonds, Affirmed B2 (LGD5, 70% from LGD5, 71%)

....Senior Unsecured Revenue Bonds, Affirmed B2 (LGD5, 70% from LGD5, 71%)

..Issuer: Delta Air Lines, Inc.

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

.... Corporate Family Rating, Affirmed B1

....Senior Secured Bank Credit Facility Oct 18, 2017, Affirmed Ba1

....Senior Secured Bank Credit Facility Oct 18, 2018, Affirmed Ba1

....Senior Secured Bank Credit Facility Apr 18, 2016, Affirmed Ba1

....Senior Secured Bank Credit Facility Apr 20, 2016, Affirmed Ba1

....Senior Secured Bank Credit Facility Mar 29, 2017, Affirmed Ba1

....Senior Secured Enhanced Equipment Trust Oct 15, 2014, Affirmed Ba2

....Senior Secured Enhanced Equipment Trust Dec 17, 2016, Affirmed Ba1

....Senior Secured Enhanced Equipment Trust Aug 10, 2022, Affirmed Ba2

....Senior Secured Enhanced Equipment Trust Aug 10, 2014, Affirmed Ba3

....Senior Secured Enhanced Equipment Trust Jan 2, 2016, Affirmed Ba2

....Senior Secured Enhanced Equipment Trust Nov 23, 2015, Affirmed Ba3

....Senior Secured Enhanced Equipment Trust May 7, 2019, Affirmed Ba2

....Senior Secured Enhanced Equipment Trust Nov 23, 2019, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Aug 10, 2022, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Apr 15, 2019, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Jul 2, 2018, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust May 7, 2020, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Dec 17, 2019, Affirmed Baa1

..Issuer: Delta Air Lines, Inc. (Old)

....Senior Secured Enhanced Equipment Trust Jul 2, 2024, Affirmed Baa3

....Senior Secured Enhanced Equipment Trust Jul 2, 2024, Affirmed Baa3

..Issuer: Northwest Airlines, Inc.

....Senior Secured Enhanced Equipment Trust May 20, 2014, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust May 20, 2014, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Apr 1, 2021, Affirmed B1

....Senior Secured Enhanced Equipment Trust Apr 1, 2021, Affirmed B1

....Senior Secured Enhanced Equipment Trust Nov 1, 2017, Affirmed Ba1

....Senior Secured Enhanced Equipment Trust Nov 20, 2021, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Nov 20, 2021, Affirmed Baa1

....Senior Secured Enhanced Equipment Trust Nov 1, 2019, Affirmed Baa1

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

Michael J Mulvaney
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 changes outlook of Delta Air Lines to positive, affirms B1 CFR
No Related Data.
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