S&P Rates American Airlines' (AAL) Unsecured Notes Offering at 'B-'

Standard & Poor's Ratings Services today assigned its 'B-' issue-level rating and '5' recovery rating to American Airlines Group Inc.'s (Nasdaq: AAL) new $500 million senior unsecured notes due 2019. The '5' recovery rating indicates our expectation for modest (10%-30%) recovery in a payment default scenario. Subsidiaries American Airlines Inc., US Airways Group Inc., and US Airways Inc. guarantee the notes.

Our existing 'B-' issue-level rating and '5' recovery rating on US Airways Group Inc.'s senior unsecured debt, which American Airlines and parent American Airlines Group guarantee, are unchanged.

Our recovery rating on the senior unsecured debt factors in the possibility that American Airlines Inc. could choose to issue up to $1.8 billion of additional senior secured credit facilities, as the company noted in the prospectus. (For the complete recovery rating rationale, see our recovery report on American Airlines Group, to be published on RatingsDirect.)

Standard & Poor's revised its rating outlooks on American Airlines Group (AAG) and its subsidiaries American Airlines and US Airways Inc. to positive from stable on Aug. 29, 2014. At the same time, we affirmed our ratings on the companies, including the 'B' corporate credit ratings.

AAG reported strong earnings during the first half of 2014, with net income of $1.3 billion, and we expect that this trend will continue for the remainder of the year and into 2015. The company is benefiting from generally positive revenue conditions in the U.S. airline industry, since the largest four airlines, which have a combined market share of more than 80%, are adding capacity cautiously and focusing on raising load factors (utilization) and yield (pricing). AAG is also capturing merger cost and revenue synergies, which should increase once regulatory approvals (a single operating certificate) allow the full operational integration of the company's two airline operating subsidiaries. That integration, which AAG expects to be complete in late 2015, also carries risks, since it will involve combining information technology systems and aircraft crews.

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