Fitch Ratings has assigned ratings of 'BB-'/'RR2' to a series of special facility revenue bonds guaranteed by American Airlines Group Inc. and American Airlines, Inc.

The bonds are part of a series of revenue bonds issued in 2016 with various maturities through 2031. The bonds are issued by the New York Transportation Development Corporation and guaranteed by American. The proceeds will be used to refinance an upcoming maturity and to fund ongoing construction. The ratings are in line with Fitch's existing ratings on American's currently outstanding JFK revenue bonds. Fitch currently rates American at 'B'/Rating Watch Negative. The bonds are assigned to American Airlines Inc., but are guaranteed by both American Airlines, Inc. and American Airlines Group, Inc.

Separately, Fitch has updated its recovery analysis to reflect new debt that either has been issued or is likely to be issued through the remainder of this year to maintain sufficient liquidity as the airline works through the coronavirus downturn. The issuance of new secured debt reduces our estimated recovery prospects for American's secured creditors driving the ratings downgrade to 'BB-'/'RR2' from 'BB'/'RR1' for American's outstanding secured debt, and further dilutes the unsecured bond's position, driving the unsecured recovery rating to 'CCC+'/'RR6' from 'B-'/'RR5'. Fitch's actions on American's existing secured and unsecured debt are separate from the issuance of its proposed JFK revenue bonds.

KEY RATING DRIVERS

JFK Bonds: The JFK bonds are secured by a mortgage on American's leasehold interest in Terminal 8 at New York's JFK Airport. The 'RR2' rating on the JFK bonds and Fitch's decision to equalize the revenue bonds ratings with American's other secured debt reflects the strategic importance of American's position at JFK. The airport acts as a key international gateway for American. 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.

Recovery Analysis: Separate from the issuance of the proposed industrial revenue bonds, Fitch has also reviewed its recovery analysis for American. Fitch's recovery analysis assumes that American would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The going concern (GC) EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which we base the enterprise valuation. Fitch uses a GC EBITDA estimate of $5.5 billion and a 5.5x multiple generating an estimated GC enterprise value (EV) of $27 billion after an estimated 10% in administrative claims. Fitch views its GC EBITDA assumption as conservative as it remains below levels generated in 2014, the first year after the company last exited bankruptcy, but it incorporates potential structural changes to the industry driven by coronavirus. These assumptions lead to an estimated recovery for senior secured positions in the 71%-90% (RR2) range and poor recovery prospects (RR6) for unsecured positions.

Corporate Rating:

Fitch expects that the company will have sufficient liquidity and access to capital to manage through the year; however, significant additional borrowing and the likelihood of a slow recovery make it likely that the company's credit metrics will remain well outside of our pre-coronavirus expectations at least through 2021 or 2022. The company also has material debt payments this year and next, making a rebound in demand and continued access to capital markets essential.

Cash burn through year-end will be substantial. Near-term liquidity is supported by government grant money, debt issuances that have already been completed, and significant cost cutting measures. Fitch believes that American has remaining ability to raise additional funds, including government loans under the CARES Act, subordinate tranches on existing EETC transactions, and the potential to engage in forward sales of miles to credit card partners. Disruptions to the credit markets, or unexpected problems in obtaining government loans could quickly cause financial flexibility to deteriorate, which drives the Negative Rating Watch.

DERIVATION SUMMARY

American is rated lower than its major network competitors, Delta and United primarily due to the company's more aggressive financial policies. American's debt balance has increased substantially since its exit from bankruptcy and merger with US Airways in 2013 as it has spent heavily on fleet renewal and share repurchases. As such, American's adjusted leverage metrics are at the high end of its peer group.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Adjusted debt/EBITDAR sustained below 4.3x;

FFO fixed-charge coverage sustained around 2.5x;

FCF generation above Fitch's base case expectations.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Adjusted debt/EBITDAR sustained above 6x;

Failure to obtain government grants and/or sufficient outside funds to maintain liquidity;

Evidence of trouble refinancing pending debt maturities;

EBIT margins failing to return to mid to high single digits.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

LIQUIDITY AND DEBT STRUCTURE

At March 31, 2020, American had $6.8 billion in total available liquidity, consisting of $3.6 billion in unrestricted cash and short-term investments and $3.2 billion in undrawn capacity under its revolving credit facilities, of which American borrowed $2.7 billion in April 2020.

During the first quarter of 2020, American completed the following financing transactions:

Refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027;

Raised $1.0 billion from a 364-day senior secured delayed draw term loan credit facility;

Raised $280 million from aircraft sale-leaseback transactions; and

Raised $197 million from aircraft financings, of which $17 million was used to repay existing indebtedness.

American Airlines Group and its subsidiaries were approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act of which it received an initial disbursement of $2.9 billion in April 2020 (representing 50% of the current expected total). American and its regional affiliates currently anticipate receiving three additional installments from May to July 2020.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

RATING ACTIONS

ENTITY/DEBT	RATING	RECOVERY	PRIOR

American Airlines, Inc.

senior unsecured

LT	BB- 	New Rating	RR2

senior unsecured

LT	BB- 	Affirmed	RR2	BB-

senior secured

LT	BB- 	Downgrade	RR2	BB

American Airlines Group, Inc.

senior unsecured

LT	CCC+ 	Downgrade	RR6	B-

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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