American Airlines Lifts Off; Xerox Upgraded

Expected improvements in earnings and cash flow has led Standard & Poor's to raise AMR Corp. and subsidiary American Airlines' ratings to B- from CCC. The outlook is negative. The upgrade is based on $1.8 billion of annual concessions over the next five years from an April 2003 agreement with labor groups; about $200 million of added concessions from suppliers, private lessors and creditors; and an additional $2 billion annually through lowered non-labor costs, stated S&P.

While AMR remains highly leveraged and vulnerable to any further airline industry revenue deterioration, the company's liquidity has improved somewhat through a $360 million federal security expense refund in May. The Ft.Worth, Texas-based company has about $1.45 billion in unrestricted cash--well below the $1.9 billion in December 2002--so its liquidity remains no better than adequate, according to S&P. The airline still faces a weak revenue environment and AMR carries a consolidated total of $22 billion of debt and leases in addition to $6 billion of unfunded pension and retiree medical obligations. An AMR spokesperson declined comment.

* Xerox Corp.'s improved credit protection measures, enhanced liquidity profile, stabilized financial performance and simplified capital structure have led Fitch Ratings to upgrade the company and its subsidiaries' senior unsecured debt rating to BB from BB-. Fitch rated Xerox's new $1 billion bank credit facility BBB- due to its senior position in the capital structure and strong collateral. Proceeds from the issuance of approximately $450 million of equity, in conjunction with proceeds from the convertible preferred stock, senior notes, new bank agreement and the company's cash will be used to repay $3.1 billion of bank debt. These measures will extend debt maturities, provide additional equity to the capital structure and increase financial flexibility (LMW, 6/16).

In addition to the refinancing, Conn.-based Xerox has outsourced a majority of its manufacturing, reduced headcount by about 30%, exited the ink jet business and improved working capital metrics in efforts at cost cutting. Xerox has also recently introduced several competitive products. Calls to Xerox officials were not returned.