Delta Air Lines Downgraded To 'BB' From 'BBB-' On Steep Demand Decline Due To Coronavirus, Ratings Remain On CreditWatch

  • The steep decline in airline bookings due to the coronavirus outbreak will sharply reduce Delta Air Lines Inc.'s revenue and cash flow, causing its 2020 credit metrics to be much weaker than its 2019 results and our previous expectations. Delta is taking various steps to offset this decline, including capacity reductions and cost-savings and liquidity initiatives, though we believe they will be insufficient to make up for its lost revenue.
  • Currently, we expect passenger air traffic to begin to recover in late 2020. However, any further delays will prolong the weakness in the company's credit metrics.
  • We revised our assessment of Delta's liquidity to adequate from strong to reflect our expectation for a sharp reduction in its cash flow generation.
  • Therefore, we are lowering all of our ratings on the company, including our issuer credit rating, to 'BB' from 'BBB-'. At the same time, we are lowering our issue-level rating on Delta's unsecured debt to 'BB' from 'BB+' and are assigning our '3' recovery rating.
  • All of our ratings remain on CreditWatch, where we placed them with negative implications on March 13, 2020. We expect to resolve the CreditWatch as we learn more about the effect of the coronavirus on Delta's financial position.
NEW YORK (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above.We expect Delta's credit metrics to weaken sharply from our previous expectations in 2020 due to the effects of the coronavirus pandemic. While the company is reducing its capacity and some associated costs, and will benefit from the steep decline in oil prices, we expect these supporting factors to be more than offset by its much weaker traffic. However, we expect the volume of passenger traffic to begin to recover later this year and continue improving into 2021.
We expect to resolve the CreditWatch as we learn more about the effect of the coronavirus on Delta's financial position. We would likely lower our ratings if the recovery in air traffic takes longer, or is weaker, than we expect, reducing the company's funds from operations (FFO) to debt to near 12% or below on a sustained basis and weakening its expected liquidity.
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