American Airlines' debt rating downgraded deeper into 'junk'

Fitch Ratings has lowered its rating on debt issued by AMR Corp., the Fort Worth-based parent company of American Airlines, deeper into "junk" territory, citing the collapse in global demand for air travel.

Analyst William Warlick said that the travel downturn has eroded the airline's flow of cash "at a time when the airline faces substantial fixed obligations and declining unrestricted cash balances."

At the beginning of the year, many hoped that lower jet fuel prices and reductions in passenger capacity would drive Fort Worth-based AMR to a profitable year. But the severity of the drop in demand for travel will offset much of the fuel savings, Warlick said. Meanwhile, the company has some significant debt obligations coming, including $5.3 billion in loans that come due between 2009 and 2011.

AMR still has assets it could use to raise money, including the American Eagle regional carrier, airplanes and its AAdvantage frequent flier program. But Warlick said there is no guarantee that the assets would be enough to meet future obligations.

The rating downgrade could make it more difficult, and expensive, for AMR to borrow money in the future or refinance its current debt portfolio.

The entire airline industry is struggling with the sharp decline in travel, particularly among lucrative business fliers. Many analysts now predict that AMR will lose money this year despite the savings from the drop in oil prices.

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