|Posted: Tue Dec 19, 2006 11:26 pm Post subject: S&P compares six global airlines
S&P compares six global airlines
(The following statement was released by the ratings agency)
Dec 18 (UNI)
Leading global airlines today have similar market positions, but their financial profiles are widely different, according to a Standard & Poor’s Ratings Services’ peer comparison published today.
To understand better why certain air carriers are able to stand out from their peers we have compared and contrasted six such airlines, two each from North America, Europe, and the Asia-Pacific region: AMR Corp. (B/Stable/B-3),
British Airways PLC _(BB+/Positive/--),
Deutsche Lufthansa AG (BBB/Stable/A-2),
Japan Airlines Corp. (B+/Negative/--)
Qantas Airways Ltd. (BBB+/Watch Neg/A-2), and
UAL Corp. (B/Stable/--).
The airlines face dangerous crosswinds, ranging from increasing price competition to high fuel costs. The industry is relatively fragmented, with no single airline accounting for more than several percentage points of total passenger traffic. Still, some air carriers have extensive route networks and major shares in selected markets that support a respectable business profile. Among those global airlines, the main differentiating credit factor is their financial profiles, which range from solid to highly leveraged.
Similar to our approach to rating other transportation and industrial companies, when we rate an airline, our analysis encompasses both business risk (industry characteristics, company competitive position) and financial risk (accounting practices, financial policy, cash flow adequacy, capitalization, and liquidity).
Qantas, Lufthansa, and British Airways have relatively strong financial profiles, built on their solid positions on profitable international routes, while AMR, Japan Airlines, and UAL carry heavy debt loads and, in the case of the U.S. carriers, face fierce competition in their home markets,’’ said Standard & Poor’s credit analyst Philip Baggaley.
Qantas’ investment-grade rating is at risk, however, given a proposed leveraged buyout by private equity, while AMR and UAL are benefiting from much improved earnings recently.’’ The peer comparison compares and contrasts the six airlines’ strengths and weaknesses, using operating and financial statistics, plus qualitative analysis.