Airline Credit Rating Methodology: How Rating Agencies Assess Airlines and Why It Matters for Airport Finance
Understanding the credit frameworks that shape airline financial profiles and airport bond ratings
A reference for airport and aviation finance professionals
Prepared by DWU AI · Reviewed by alternative AI · Human reviewed
An AI Product of DWU Consulting LLC
March 2026
DWU Consulting LLC provides specialized aviation finance consulting to airports, transit authorities, and port districts across North America. This article analyzes the quantitative frameworks published by Moody's, S&P, and Fitch for airline credit assessment, focusing on the direct linkages between airline ratings and airport bond credit metrics.
Scope & Methodology
This article reviews published credit rating methodologies from the three dominant rating agencies (Moody's Investors Service, S&P Global Ratings, and Fitch Ratings) and applies their frameworks to current U.S. airline ratings as of March 2026. Current ratings are drawn from agency press releases and investor disclosures dated through February 2026. The analysis focuses on the four largest U.S. carriers by enplanements (Delta, United, Southwest, American) and their relevance to airport credit assessment under Moody's "Publicly Managed Airports and Related Issuers" methodology (February 2023). All quantitative data are sourced from official airline earnings releases and agency rating reports.
Summary
Airline credit quality is a quantifiable input to airport bond ratings under rate-making frameworks where airlines absorb cost increases, as evidenced by Moody's and S&P airport scorecard methodologies (Moody's, Feb 2023; S&P, Dec 2024). The gap between investment-grade carriers (Delta, Southwest) and sub-investment-grade carriers (United, American) translates to measurably different counterparty risk profiles in airport use agreements. Airports whose dominant carrier operates at 3.5x leverage (United) or sub-investment-grade ratings (American, BB+/Ba2) face higher counterparty risk—reflected in Moody's airport scorecard methodology (Feb 2023), which assigns explicit point differentials for "Carrier Base Quality" based on carrier ratings, and explicitly scores carrier concentration and cost recovery risk as factors with explicit point impacts—than those with BBB/Baa2-rated dominants. Rating agencies anchor "carrier base concentration" and "cost recovery risk under rate methodologies" to named scorecard inputs with defined point values (Moody's, Feb 2023), making airline credit ratings a first-order input to airport finance planning.
The Dual Relevance of Airline Creditworthiness
Airline credit ratings serve two distinct audiences. For airline bondholders and lenders, a rating expresses an opinion on default probability. For airport bond credit analysts, airline creditworthiness is a measurable input into the airport's own credit assessment — affecting Moody's airport scorecard factors for carrier base quality and concentration, and influencing the airport's cost-recovery risk under residual and hybrid rate-setting methodologies (Moody's, Feb 2023).
The four largest U.S. carriers by 2025 enplanements—Delta (21.3% market share), United (16.8%), Southwest (15.2%), and American (19.7%)—all issue rated public debt and represent the universe of major U.S. airlines with published credit ratings from all three rating agencies (BTS T-100, 2025). The current ratings reflect post-pandemic recovery across global airlines, with median leverage improving from 4.2x in 2021 to 3.8x in 2024 (IATA Financial Monitor, Aug 2024) and EBITDAR margins rising from approximately 12% to 15% over the same period (S&P Global, Dec 2024).
Current U.S. Carrier Ratings
| Airline | S&P | Moody's | Fitch | Outlook Trend |
|---|---|---|---|---|
| Delta Air Lines | BBB (Dec 2024) | Baa2 (Feb 2025) | BBB (Jul 2024) | Stable; IG at all three agencies |
| United Airlines | BB+ | Ba1 | BB+ (Dec 2025) | Positive; one notch below IG |
| Southwest Airlines | BBB+ | Baa1 | BBB | Stable; IG at all three agencies |
| American Airlines | BB+ | Ba2 | BB | Lowest ratings among Big Four; sub-IG |
Delta and Southwest are the only U.S. airlines currently rated investment grade by all three agencies. Delta was downgraded to sub-investment-grade by all three agencies during the 2020 pandemic downturn and returned to investment-grade status by all three in 2024. Moody's upgraded Delta to Baa2 from Baa3 on February 3, 2025, citing "improving operations, free cash flow and debt reduction" and noting that Delta's business profile "is strong, as measured by Moody's scorecard factors for market position and financial profile" (Moody's, February 3, 2025).
United Airlines achieved Fitch upgrades to BB+ (from BB) in December 2025, with Fitch citing execution on strategic initiatives and debt reduction, along with improving EBITDAR leverage of 3.5x in Q3 2025, down from 3.8x at year-end 2024 (Fitch, Dec 2025). Fitch's base case model projects United's leverage will decline toward or below 3x over the next one to two years, based on United's stated debt reduction plans and Fitch's published model assumptions for continued EBITDAR growth absent major debt issuances (Fitch Ratings, Dec 2025).
Southwest Airlines maintains investment-grade ratings at all three agencies with stable outlooks. Southwest's BBB+/Baa1/BBB ratings reflect the carrier's conservative balance sheet — lowest leverage among the four largest U.S. carriers — and substantial unencumbered asset base (S&P; Moody's; Fitch). While Southwest lacks the international network diversification and premium revenue streams of the Big Three network carriers, its financial discipline has sustained its investment-grade credit position throughout the post-pandemic period.
S&P's Airline Rating Framework
S&P Global Ratings' published criteria for rating airlines — "Key Credit Factors: Criteria For Rating The Airline Industry" — divide the analysis into two segments: business risk and financial risk.
Business Risk Factors
S&P ranks its airline credit factors into three categories based on relevance to the rating outcome:
Category 1 (most relevant):
- Market position: route network, revenue potential of markets served, competitive position in those markets
- Revenue generation: capacity utilization (load factor) and pricing (yield per revenue passenger mile)
- Operating cost structure relative to competition and the airline's revenue model (CASM, adjusted for stage length)
Category 2 (lesser relevance, sometimes critical):
- Diversity of revenues by geography, passenger type, and nonpassenger services (cargo, loyalty program revenue)
Category 3 (shapes profile in conjunction with other factors):
- Age, technology, and suitability of aircraft fleet
- Labor relations
- Service standards and reputation
S&P characterizes the airline industry as involving "greater credit risk than most other industries and sectors" (S&P, Dec 2024) and notes that more than two-thirds of rated airlines are classified as either "weak" or "vulnerable" per S&P's business risk profile definitions (S&P, Dec 2024). Business risk scores range from Excellent to Vulnerable.
Financial Risk Analysis
S&P evaluates five financial risk categories — accounting characteristics, financial governance, cash flow adequacy, capital structure and leverage, and liquidity — and assigns an overall financial risk score ranging from Minimal to Highly Leveraged.
The key financial ratios S&P applies to airlines, adjusted for off-balance-sheet leases and retiree liabilities, include:
| Ratio Category | Primary Metrics |
|---|---|
| Cash flow adequacy | FFO/debt, EBITDA interest coverage |
| Capital structure and leverage | Debt/EBITDA (or debt/EBITDAR), debt/capital, debt/revenues |
| Profitability | Operating margin (before and after D&A), pre-tax return on capital |
| Liquidity | Unrestricted cash as % of revenues (10–30% range across 13 U.S. carriers, S&P Global, Dec 2024) |
S&P notes in its airline criteria that operating margins after depreciation averaged 4.8% across 13 U.S. carriers in 2024 (S&P Global, Dec 2024), which S&P classifies as "weak." S&P also notes that lease-adjusted debt often exceeds balance sheet debt for airlines; for example, at Delta, lease-adjusted debt was $24.6B versus $16.2B in balance sheet debt as of December 31, 2024 (Delta Q4 2024 earnings). When S&P upgraded Delta to BBB in December 2024, the agency cited expected FFO-to-debt of approximately 40% in 2025 and S&P-adjusted debt-to-EBITDA of approximately 2x, reflecting Delta's financial metrics relative to the BBB rating threshold (S&P Global Ratings, December 3, 2024).