Fitch: Stronger Fundamentals Won't Lead To Upgrades for U.S. Airlines.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 11, 2003

Operating results at the U.S. airlines will continue to strengthen in 2004, but Fitch Ratings does not expect this improvement to translate into better credit quality quickly, according to an outlook and review of the industry published today by the rating agency. Fitch has published several 2004 outlooks concerning various industries as well as other fixed-income sectors.

The recovery of the six major network airlines -- American, Continental, Delta, Northwest, US Airways and United -- will be slow and arduous, and it remains to be seen whether these airlines can reduce expenses enough to be profitable in the long run.

Fitch expects the coming year for the top U.S. carriers to be marked by pressure to lower operating expenses in response to the competitive threat posed by rapidly growing, low-cost airlines. Growing cash obligations -- in the form of scheduled debt maturities and required pension plan funding -- will also limit the major airlines' ability to boost liquidity and repair their balance sheets in 2004.

Overcapacity lies at the heart of the top carriers' financial difficulties. With little pricing power -- particularly in markets where low-cost competition has spread rapidly -- the majors will once again focus on cutting costs and preserving liquidity as the keys to financial stability in 2004. While some efforts to cut costs and raise cash balances have been successful, much work lies ahead.

In comparison, the credit outlooks for the profitable low-cost carriers are generally stable or improving as these airlines benefit directly from the capacity constraint of the majors and demand grows. For the most profitable carriers -- Jet Blue, AirTran and Frontier -- low unit labor costs, new fleets, and the ability to gain market share in routes formerly dominated by major network carriers has laid the foundation for stronger operating profiles and better capital structures. Each of these airlines tapped the equity and debt markets to raise capital in 2003, and their liquidity positions are all strong enough to weather future demand shocks.

Liquidity at the major U.S. airlines is adequate to stave off a cash crisis if revenues improve modestly next year, barring other major disruptions. Setting aside United Airlines, which is expected to exit Chapter 11 some time next year, each of the other five major network carriers has adequate cash on hand to meet its financial obligations next year.

The outlook 'Stronger Fundamentals Won't Lead To Upgrades for U.S. Airlines' can be found on Fitch's website at 'www.fitchratings.com' by linking to the 'Corporate Finance' sector, clicking on 'Corporates' and then 'Special Reports'. Fitch will be maintaining a web page with a full list of 2004 outlook pieces that will be readily available on 'www.fitchratings.com'.