S&P Places Alaska Air Group (ALK) n Review for Downgrade

Standard & Poor's Ratings Services said today that it has placed its 'BBB-' corporate credit rating on Alaska Air Group Inc. (NYSE: ALK) and its 'BBB-' corporate credit rating on the company's major operating subsidiary, Alaska Airlines Inc., on CreditWatch with negative implications.

"The CreditWatch negative placement follows Alaska Air's announcement that it has agreed to acquire Virgin America Inc., the parent of airline Virgin America, for approximately $4 billion," said Standard & Poor's credit analyst Betsy Snyder. "This price includes approximately $2.6 billion of cash in addition to Alaska Air's assumption of approximately $1.4 billion of debt and leases." We currently assess Alaska Air's business risk profile as fair and its financial risk profile as minimal. While we anticipate that Alaska Air will benefit from the combination in certain markets, the company's strong profitability will likely be hurt by integration costs--which management estimates at $300 million-$350 million--before it is able to realize the $225 million of annual synergies that it expects from the transaction.

We will resolve the CreditWatch placement when the transaction closes and more information becomes available about the combined airline's operating and financial profiles, including its expected capital structure and financial policies.

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