NEW YORK—(BUSINESS WIRE)—Fitch Ratings has assigned ratings of ‘BB’ to a series of special facility revenue bonds to be guaranteed by American Airlines Group Inc. and its primary operating subsidiary, American Airlines, Inc. The guarantees will be secured by a mortgage on American’s leasehold interest in Terminal 8 at New York’s JFK Airport. The bonds will be issued by the New York Transportation Development Corporation, and the proceeds of the bonds will be loaned to American to be used to refinance American’s existing 2002 and 2005 series of special facility revenue bonds. The existing bonds were issued for the purposes of financing the development of Terminal 8.

The issuance will consist of around $850 million in new bonds including serial bonds that will mature between 2017 and 2021, and term bonds maturing in 2026 and 2031.

KEY RATING DRIVERS

The ‘BB’ rating represents a one-notch uplift from American’s Long-Term Issuer Default Rating (IDR) of ‘BB-’. Fitch views the revenue bonds as having a favourable position compared to American’s unsecured issuances primarily supported by the strategic importance of American’s position at JFK. The airport acts as a key international gateway for American and handles more than 100 daily flights. JFK is a slot controlled airport; slots, gates and terminal space are highly sought after by airlines looking to maintain a presence in the key New York market. As such, Fitch believes that American would have a material incentive to affirm its lease at JFK in the event that it was to enter bankruptcy as it did during its 2011 bankruptcy proceedings.

If American were to miss payments under its lease with the Port Authority of New York and New Jersey, subject to the satisfaction of certain conditions, the bondholders have the right to foreclose and to find a successor lessee. The bonds benefit from certain cross-default features with American’s lease with the Port Authority of New York and New Jersey. Given the desirability of JFK for any airline looking to expand its presence in New York, there is a high likelihood that a new tenant could be found and that the bondholders could receive material recovery value. Note that Fitch views this as an unlikely scenario and that the actual recovery value is difficult to estimate given the nature of the asset and the potential costs involved with foreclosing and re-leasing the terminal space.

American Airlines Credit Profile

Fitch upgraded American to ‘BB-’ from ‘B+’ in December of 2015. The rating upgrade was supported by the strong financial results that American has posted since its merger with US Airways and concurrent emergence from bankruptcy. The upgrade also reflects fading merger integration risks now that the company is more than two years into the process. Fitch considers most of the ratings pressure from integration risk to be in the past now that the two companies have successfully merged on to one reservation system.

The ‘BB-’ rating also incorporates the risks in American’s credit profile, including a significant debt balance and expectations for leverage to be somewhat high for the rating over the next two years, heavy upcoming capital requirements, and shareholder focused cash deployment. Other rating concerns include risks that are inherent to the airline industry including cyclicality, intense competition, sensitivity to spikes in the price of jet fuel, and exposure to exogenous shocks (i.e. war, terrorism, epidemics, etc.).

KEY ASSUMPTIONS

Fitch’s key assumptions within the rating case for American include:

—Low single-digit capacity growth through the forecast period;

—Continued stable/slow growth in demand for U.S. domestic travel;

—Mid-single-digit PRASM decline in 2016 followed by relatively flat unit revenues thereafter;

—Conservative fuel price assumption which includes crude oil increasing to $80+/barrel by 2018.

RATING SENSITIVITIES

Positive Rating Sensitivities for the corporate rating include:

—Adjusted leverage sustained below 4x;

—Funds from operations (FFO) fixed charge coverage sustained around 3x;

—Free cash flow generation above Fitch’s base case expectation;

—Further progress towards reaching joint collective bargaining agreements with various labor groups.

Future actions that may individually or collectively cause Fitch to take a negative rating action include:

—Adjusted debt/EBITDAR sustained above 4.5x;

—EBITDAR margins deteriorating into the low double-digit range;

—Shareholder focused cash deployment at the expense of a healthy balance sheet.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

—Series 2016 revenue bonds issued by the New York Transportation Development Corporation: ‘BB’

Fitch currently rates American as follows:

American Airlines Group Inc.

-Long-Term IDR ’BB’;

-Senior unsecured notes ’BB/RR4’.

American Airlines, Inc.

-Long-Term IDR ’BB’;

—Senior secured credit facility ‘BB+/RR1’.

Additional information is available on www.fitchratings.com

Summary of Financial Statement Adjustments – Fitch has made no material adjustments that are not disclosed within the company’s public filings.

Applicable Criteria

Corporate Rating Methodology – Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

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