Summary
- Delta Air Lines’ credit ratings were upgraded by Fitch Ratings.
- The agency cited significantly reduced debt, a solid business profile, and other factors when it improved the company’s credit rating.
- However, Fitch has still rated American Airlines and United Airlines below Delta Air Lines, with the formers’ credit rating being ‘highly speculative.’
Fitch Ratings has upgraded Delta Air Lines’ credit ratings, including its long-term issuer default rating, senior secured debt ratings, its LaGuardia industrial revenue bonds, and unsecured ratings, reflecting the airline’s credit metrics’ improvements after the end of the pandemic.
Significantly reduced debt
According to the ratings company, the upgraded ratings reflected the airline’s efforts to reduce its debt over the past few years. In total, Delta Air Lines has reduced gross debt and operating leases by around $11 billion in the past three years, while unencumbered assets should total $30 billion by the end of 2024.
|
Delta Air Lines’ current rating |
Previous rating |
|
|
Long-term issuer default rating (LT IDR) |
BBB- (good credit quality) |
BB+ (speculative) |
Photo: Kevin Hackert | Shutterstock
Meanwhile, Fitch Ratings detailed that it expected the carrier to sustain its earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) leverage in the mid 2x range, fixed charge coverage of greater than 4x, and generate consistent positive free cash flow (FCF), consistent with an investment grade credit profile.
“Delta also benefits from a solid business profile reflected in its leading position in key markets and strong brand reputation. The ratings consider Delta’s conservative financial policies, with management consistently prioritizing manageable debt levels.”
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A goal from 2021
In its own statement, Delta Air Lines detailed that achieving an investment grade rating was a goal it set out to achieve in 2021 when it presented its plans to emerge from the pandemic.
Out of the three ratings companies, Fitch Ratings and Moody’s Investor Service have rated Delta Air Lines as investment grade, while S&P Global Ratings currently has the airline one step below investment grade.
Photo: Markus Mainka | Shutterstock
Nevertheless, Dan Janki, the chief financial officer (CFO) of Delta Air Lines, said that Fitch Ratings’ upgrade was a major accomplishment, reflecting the outstanding work of the airline’s employees.
“We’ll continue to focus on strengthening our balance sheet and our financial foundation as we move forward into the second half of the year and beyond.”
During the first half of 2024, Delta Air Lines ended the period with $30.4 billion of revenue, a 7% year-on-year (YoY) increase, resulting in an unaudited net profit of $1.3 billion, or 8% less than during the same period in 2023.
By June 30, the airline’s total long-term debt was $14 billion, compared to $15.9 billion at the end of 2023, while its cash and cash equivalents improved to $4.1 billion from $2.7 billion during the same period.
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American Airlines and United Airlines credit ratings
In comparison, Fitch Ratings rated American Airlines Group, the parent company of American Airlines and three regional subsidiaries operating flights as American Eagle, as B+. Fitch Ratings’ definition of the rating was that it was ‘highly speculative.’
Photo: Markus Mainka | Shutterstock
Meanwhile, United Airlines Holdings was rated BB-, defined as ‘speculative.’ Fitch Ratings reviewed American Airlines Group and United Airlines Holdings in January and May, respectively, taking no action to upgrade or downgrade their ratings.
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