Moody's changed its rating outlook on United Airlines Holdings Inc. to positive from stable, citing the company's strong business profile and a network strategy that should enable it to sustain ample cash flow despite potential economic headwinds.
United's ongoing network optimization efforts focusing on mid-continent hubs, service delivery improvements and cost management initiatives should help the company remain profitable in 2020 amid cost growth pressures, the rating agency said. This scenario assumes that U.S. GDP growth would at least be in line with Moody's estimate of a 1.7% expansion for 2019.
"Operationally, 2020 is likely to be a replay of 2019 for United Airlines," Moody's said as it affirmed the airline's Ba3 senior unsecured bond rating, among others.
Moody's expects U.S. airlines would undertake capacity reductions and cost management measures in case of an economic downturn in order to avoid a dip in earnings and cash flows and be able to maintain acceptable returns on investment.
The grounding of the Boeing 737 MAX "modestly" affected United's fleet and network strategy in 2019, but it also resulted in higher free cash flow for the airline due to lower capital expenditures. Moody's expects investment to increase and cash flow to decline once the MAX receives clearance from the U.S. Federal Aviation Administration to return to service.