Moody's downgrades Northwest Airlines rating

MINNEAPOLIS (AP) -- Moody's Investor's Service on Thursday lowered its long-term debt ratings for NWA Corp. and its Northwest Airlines subsidiary, citing higher risks for debtholders because of the drop in airline traffic.

Already below investment grade, Northwest's senior implied rate was cut one notch to B2, while its senior unsecured rating was downgraded to Caa1, from B2.

About $5.9 billion of Northwest's debt securities are affected.

"The outlook is negative," the Moody's report said, with weaker revenues expected "for the foreseeable future."

Moody's also downgraded the ratings of Houston-based Continental Airlines, Atlanta-based Delta Air Lines and ATA Holdings Corp., the parent of Indianapolis-based ATA Airlines Inc., the 10th-largest airline.

Northwest reported last week that its March traffic was down 6.4 percent from a year ago, including an 11 percent drop after the onset of the war in Iraq. About three of every four seats were filled on March flights, the airline said.

"Weak cash flow in the second and third quarter, generally a period of strong positive cash flow for Northwest, would place additional strain on the company as it enters the fourth and first calendar quarters which are more traditionally cash flow negative," Moody's said.

Even if airline traffic picks up, Moody's said pricing is expected to remain very competitive as some carriers put fares on sale to generate short-term cash rather than long-term profits.