AMR Credit Rating Cut by S&P

DALLAS TheStreet) -- Standard & Poor's said it has cut the credit rating of American Airlines parent AMR ( AMR) and has placed the airline's rating on credit watch with negative implications.

The reduction to "CCC+" from "B-" came minutes after the markets closed Thursday. For AMR, it was another bad day of trading based on bankruptcy fears, with shares shedding 10 cents, or about 5% of their value, to close at $1.72.

During the day, shares sank as low as $1.63, a point last reached in March 2003, when the company was also enshrouded by bankruptcy fears. American shares have fallen 78% this year. In after-hours trading, an hour after the close, shares were trading at $1.67.

In a note explaining the downgrade, S&P analyst Phil Baggaley reiterated the widespread concerns over the carrier's inability to secure a contract with its pilots and other work groups. He said that the agency "expects that AMR's liquidity will shrink in the seasonally weak fourth quarter and in 2012, but doesn't believe that AMR's current liquidity situation and state of labor negotiations imply any immediate risk of a Chapter 11 bankruptcy filing."

Baggaley said the credit watch placement "reflects our growing concern that American will not be able to secure labor contracts that materially narrow its labor cost disadvantage to other large U.S. network airlines, an increasingly serious issue in view of the airline's heavy losses and the uncertain economic outlook."

On Monday, American made a comprehensive contract proposal to its pilots. The carrier asked that pilots be allowed to vote on the proposal, even though every indication is that the group is overwhelmingly opposed. It appears that contract talks, which recessed on Monday, could resume shortly after Thanksgiving.

The downgrade no doubt comes as a blow to AMR, which has focused during the past five years on reducing debt, enhancing liquidity and improving its credit metrics.

S&P also lowered various ratings on the companies' issues and placed them on CreditWatch. The recovery ratings remain unchanged.

-- Written by Ted Reed in Charlotte, N.C.

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