American Airlines Group Inc.

The outlook is stable. We expect earnings and cash flow to improve through 2020 due in part to higher ticket prices and lower fuel expenses, despite higher costs associated with the Boeing 737 MAX grounding and delayed deliveries, and flight cancellations caused by mechanics' work slowdowns. As a result, we expect credit metrics to improve, with FFO to debt in the high-teens percent area compared with 15% in 2018, and to remain relatively consistent in 2020. We could lower our ratings on American over the next 12 months if revenue and earnings deteriorate, and reductions in its share repurchases or capital spending do not offset the decline, causing American's FFO to debt to fall below 12% for a sustained period.

...We expect American's credit metrics to remain weaker than those of major competitors United and Delta. In 2018, American Airlines Group Inc.'s credit metrics lagged United Airlines Inc.'s and Delta Air Lines Inc.'s. Its debt to EBITDA was 5x compared with Delta's 2.6x and United's 3x, while its funds from operations (FFO) to debt was 15% compared with Delta's 35% and United's 27%. This was primarily because of higher operating expenses, particularly fuel, and high partially debt-financed share repurchases, although this abated in 2018 and remained flat in the first nine months of 2019. Based on that period, we expect higher revenues and earnings for the year despite the Boeing 737 MAX grounding and delayed deliveries, and other aircraft out of service because of mechanics' work slowdowns. We expect some improvement in credit metrics, but for the gap to remain between American, and Delta and United. We expect American's margins to improve somewhat in 2019 due to strong pricing and despite...

Full Report