S&P cuts ratings on AMR, American Airlines

Rating firm Standard & Poor's lowered Thursday its ratings for American Airlines and its parent AMR Corp. citing continuing losses and the failure to reach a new contract with the pilot's union. "The American Airlines Inc. pilots' union leadership's rejection of a contract proposal made public by management is a setback in American's long-running contract negotiations," S&P said in a statement. The rating firm lowering its ratings on AMR and American, including the corporate credit ratings, by one notch, to 'CCC+' from 'B-'. It also placed the ratings on CreditWatch with negative implications. "The CreditWatch placement reflects our growing concern that American will not be able to secure labor contracts that materially narrow its labor cost disadvantage to other large US network airlines," S&P credit analyst Philip Baggaley said in the statement. That situation has become "an increasingly serious issue in view of the airline's heavy losses and the uncertain economic outlook," he said. AMR has also reported heavy losses this year and underperformed its peers, S&P noted. The losses, it said, combined with risks related to the US and global economy and the lack of progress in labor negotiations signal that liquidity could come under pressure over the next 12 months. "Although cash liquidity is currently satisfactory, we believe that this will decline with further losses and heavy debt maturities through the slow winter season." Nevertheless, S&P said it did not see any immediate risk of bankruptcy for AMR. Rumors that AMR would file for bankruptcy protection have swirled in recent months after an unusual spike in pilot retirements, with the pilots trying sell off their own stocks in the company. Shares in AMR have plunged 23.5 percent since the beginning of the week, including Thursday's 5.5 percent drop that left the stock at $1.72. At that price, the company has a market value of $576 million. In July, American Airlines, which with sister American Eagle has a fleet of 900 aircraft, announced a massive order for aircraft divided between US aerospace giant Boeing and European rival plane maker Airbus. American said it would buy 200 Boeing 737s and 260 Airbus A320 jets, both more fuel efficient than the aircraft it currently operates.