S&P Global Ratings anticipates that North American airlines will be positioned well for future financing. Several airlines face large debt repayments, but they will likely refinance a portion of it alongside repayment from internally generated cash flow and cash on hand. We also expect certain airlines will have the flexibility to refinance via unsecured debt, which has been scarce across the industry since the outset of the COVID-19 pandemic. Furthermore, the cost of capital optimization will be a key consideration for airlines for future debt issuances.

In our view, funding sources will likely remain well-diversified. This includes enhanced equipment trust certificates (EETC), which have lagged over the past two years from an issuance perspective mainly as a consequence of original equipment manufacturer (OEM) new aircraft delivery delays and uncertainty. Debt secured by loyalty program assets and slots gates, and routes (among other financing options) could also remain part of the mix. Collateral valuations have been resilient beyond our expectations, showing no signs of easing.

Airlines will continue to focus on improving balance sheets, with several targeting more-conservative leverage. We are mindful of recent domestic U.S. demand softness that has emerged, due in part to weaker consumer confidence amid macroeconomic and government policy uncertainty.

Notwithstanding the resulting downward revision to first-quarter 2025 guidance by certain airlines, we have not altered our expectations for 2025. In particular, we continue to expect the U.S. network carriers to generate free cash flow at least through this year. While we expect sizeable aircraft capital expenditure (capex) for many issuers, the amount is still less than we anticipated as of last year, and we can't rule out future delivery lumpiness.

Table 1

Debt Repayment Not An Issue For Airlines

The largest airlines could fund current debt with cash on hand. However, a minimum level of cash on hand is necessary to maintain operating flexibility. For this reason, we assume most--if not all--airlines will refinance a portion of debt coming due.

Chart 1

United Airlines Holdings Inc.

• United has the largest future capex, but also the largest cash position by a wide margin.
• United issued EETCs in 2023 and 2024 and has the largest planned aircraft deliveries among its peers.
• We estimate it will generate positive free cash flow in 2025 despite high capex.

American Airlines Group Inc.

• American has the largest near-term maturities to address relative to its network peers.
• It is the most diversified by debt-funding mix.
• American recently initiated repricing and repayment transactions that will imminently reduce short-term debt by over $800 million from year-end 2024 levels.
• The company has the largest total EETCs rated by S&P Global Ratings. It considers aircraft-based financing an efficient source of capital.

Delta Air Lines Inc.

• Delta has large current maturities relative to its cash position.
• Its free cash in 2025 will likely be sufficient to repay its short-term debt (including material operating leases).
• The investment-grade rating on the company provides Delta financing flexibility.

Southwest Airlines Co.

• Southwest has a net cash position, but short-term debt is sizable.
• Cash on hand could easily cover short-term debt if desired.
• The investment-grade rating provides Southwest financing flexibility.
• Its reported debt is unsecured.

Air Canada

• Air Canada has a significant cash position, but we also expect heavy, upcoming capex.
• It is a seasoned EETC issuer.
• The free cash deficit we anticipate in 2025 stems from higher capex for new aircraft.
• Leverage at year-end 2024 was lower than peers.

Near-Term Maturities A Modest Share Of Total Debt For Most

Chart 2

• Debt maturing within the next 12 months (as of year-end 2024) is 12%-17% of total debt for U.S. and Canadian network carriers
• JetBlue and Alaska Air completed deals in 2024, and nothing material to address is upcoming.
• Allegiant and Southwest are facing large maturities, but they have smaller overall debt levels and healthy cash.
• For American, the ratio is just below 15% on a pro forma basis (for the aforementioned transactions).

Big 3 Issuers Have High Secured Debt Mixes

There is no prescribed threshold for unsecured versus secured debt that affects a given issuer credit rating. For that reason, we are generally agnostic regarding an issuers' decision to issue secured or unsecured debt. This is particularly the case when the available pool of unencumbered assets is large--like currently--and well beyond what may be required for future secured debt funding. Funding optionality and overall access to capital are more important rating considerations than a specific amount of unsecured debt in a capital structure.

We believe most airlines would prefer to target a higher share of unsecured debt relative to the current mix. In doing so, available secured borrowing capacity would presumably increase, adding financial flexibility. On the other hand, secured debt issuances are usually advantageous from a yield perspective, though the current spread differential is narrow. We believe this will remain the case for EETCs, namely as the value of new and used aircraft remain strong, and likely applies to loyalty program-backed debt, and slots, gates, and routes financings.

Delta, United, and American--the Big 3 airline issuers--make up the largest share of EETC issuers, collectively. However, only United has issued EETCs over the past two years.

Delta Air Lines Inc.

• Delta has an investment-grade issuer credit rating.
• Two-thirds of Delta's reported debt is secured (see chart 3).
• Loyalty financing is Delta's largest share of secured debt (by debt type).
• Its payroll support program (PSP) loan is the bulk of Delta's unsecured debt.

Chart 3

United Airlines Holdings Inc.

• Over 80% of United's reported debt is secured (see chart 4).
• EETCs are United's largest share of secured debt (by debt type) and includes issuances in 2023 and 2024.
• A $3.2 billion PSP loan is the bulk of United's unsecured debt.

Chart 4

American Airlines Group Inc.

• Over 80% of American's reported debt is secured (see chart 5).
• EETCs make up the largest share of American's diverse mix of secured debt.
• American's unsecured debt is mostly PSP and $1 billion of convertible notes due 2025.
• American recently repaid its unsecured notes due in fourth-quarter 2024.

Chart 5

Debt Declining For Largest Issuers

• Delta, United, and Air Canada have steadily deleveraged more than broader industry.
• American Airlines' leverage is higher than these peers, but it achieved significant debt reduction from peak 2020 levels.
• The average adjusted debt to EBITDA for the Big 3 is still above 2019 levels, but close to (or better than) the pre-pandemic average and forecasted to improve further.
• Earnings pressure at JetBlue and Allegiant and at Alaska Air (due to the Hawaiian Airlines acquisition in 2024) account for the leverage differential.
• We did not include Spirit in our calculations of historical leverage trends as an outlier (see chart 6).

Chart 6

Flexible, Favorable Debt Outlook Through 2025

We believe North American airlines will maintain flexibility to address debt maturities at least through this year. Most have access to a large range of financing options, bolstered by ample unencumbered assets potentially available as collateral. Cash positions also remain favorable and, in some cases, significant.

For the U.S. network carriers, we believe positive free cash flow generation will reduce the amount of debt that will need to be refinanced. This is consistent with their strategic objectives, which include balance-sheet improvement.