Delta scrapped by Fitch as 35,000 workers take leave

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(Bloomberg) –

Delta Air Lines Inc. was reduced to zero at Fitch Ratings as part of a general deterioration in the US airline industry and its ability to repay debt. The assessment adds urgency to the Trump administration’s desire to save the industry.

On Friday, Fitch lowered its Delta debt rating to “BB +” from “BBB-” and warned that another downgrade is possible as air travel suffers from the spread of the coronavirus. The airline, however, has more financial flexibility than some competitors, Fitch said in an industry assessment.

Delta, Alaska Air Group Inc. and Southwest Airlines Co. are “the best carriers in the United States to weather the expected slowdown,” said Fitch.

Other Fitch downgrades on Friday include:

Alaska Air downgraded to “BB +” from “BBB-” American Airlines downgraded to a notch to “B” JetBlue Airways downgraded to “BB” from “BB +” Southwest downgraded to “BBB +” from “A-” United Airlines Holdings Inc. downgraded to “BB-” from “BB”

President Donald Trump said Friday that American airlines must be saved. Responding to a tweet on the airlines’ $ 50 billion bailout, he said, “Not good … but that’s what it is. Save the airlines!

Subsidies to airlines

The Trump administration has announced up to $ 32 billion in wage subsidies for airlines, contractors and freight carriers, controlled by Treasury Secretary Steven Mnuchin.

External companies advise Mnuchin on terms he should set, including what he will demand from airlines in return, such as corporate stock warrants. Mnuchin said the money should be more than a bailout: he sought proposals from the airlines regarding the conditions for receiving aid and issued guidelines.

“Although Delta remains a more solid credit than its network counterparts, the debt contracted to maintain liquidity during the pandemic will lead to credit measures outside a range favorable to high-quality ratings at least until 2021 and probably until 2022, “Fitch said in a statement.

Airlines have been battered by the travel collapse and have responded by providing workers with time off, ground planes, cut flights and frozen hires, among other steps. The number of passengers screened at airport security checkpoints has dropped more than 90 percent from a year ago, said the Transportation Security Administration.

Leave without pay

Delta said that nearly 35,000 employees have taken voluntary, unpaid leave and are further encouraging applicants to apply.

Volunteers to take unpaid leave “are by far the most impactful measure” the carrier takes to reduce operating costs, CEO Ed Bastian told workers in a memo. The airline is improving benefits for those on leave and extending absences by a year to encourage more applicants, he said.

Bastian said Delta’s flight capacity at New York LaGuardia Airport has been reduced by more than 90% this month and by more than 80% at New York Liberty Airport John F. Kennedy and Newark , New Jersey.

The airline lost its investment category status to S&P Global Ratings last month.

(Updates with additional Fitch movements from the third paragraph.)

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