Delta Cut to Junk by Fitch as 35,000 Workers Take Leave

(Bloomberg) --

Delta Air Lines Inc. was cut to junk at Fitch Ratings as part of a general downgrade of the U.S. airline industry and its ability to service debt. The assessment adds urgency to the Trump administration’s desire to save the industry.

Fitch on Friday lowered its rating on Delta’s debt to “BB+” from “BBB-” and warned that another downgrade is possible as air travel suffers with the spread of the coronavirus. The airline does, however, have more financial flexibility than some rivals, Fitch said in an assessment of the industry.

Delta, Alaska Air Group Inc. and Southwest Airlines Co. are the “better-positioned U.S. carriers to weather the expected downturn,” Fitch said.

Other downgrades by Fitch on Friday include:

• Alaska Air downgraded to “BB+” from “BBB-”
• American Airlines downgraded by one notch to “B”
• JetBlue Airways downgraded to “BB” from “BB+”
• Southwest downgraded to “BBB+” from “A-”
• United Airlines Holdings Inc. downgraded to “BB-” from “BB”

President Donald Trump said on Friday that U.S. airlines must be saved. Responding to a tweet about the $50 billion bailout airlines are asking for, he said, “Not good...but it is what it is. Have to save the airlines!”

Airline Grants

Trump’s administration has announced as much as $32 billion in payroll grants for airlines, contractors and cargo carriers, controlled by Treasury Secretary Steven Mnuchin.

Outside firms are advising Mnuchin on the terms he should set, including what he’ll demand from the airlines in return, such as warrants for equity in the companies. Mnuchin has said the money should be more than a bailout: he’s solicited proposals from the airlines for terms on receiving the aid, and has issued guidance.

“Though Delta remains a stronger credit than its network peers, debt raised to sustain liquidity through the pandemic will drive credit metrics outside of a range supportive of investment-grade ratings at least through 2021 and likely into 2022,” Fitch said in a statement.

Airlines have been battered by the collapse in travel, and have responded by offering workers leaves, grounding planes, cutting flights and freezing hiring, among other steps. The number of passengers screened at airport security checkpoints has fallen more than 90% from a year ago, the Transportation Security Administration has said.

Unpaid Leave

Delta said almost 35,000 employees have taken voluntary, unpaid leave and is encouraging more to apply.

Volunteers to take unpaid leave “are by far the most impactful” step the carrier is taking to reduce operating costs, Chief Executive Officer Ed Bastian told workers in a memo. The airline is enhancing benefits provided to those taking time off and is extending absences of as long as a year to encourage more to apply, he said.

Delta’s flying capacity at New York’s LaGuardia Airport has been cut by more than 90% this month, and by more than 80% at New York’s John F. Kennedy and Newark, New Jersey’s, Liberty Airport, Bastian said.

The airline lost its investment-grade status at S&P Global Ratings last month.

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