Airline Debt Structures Airport Implications

Airline Debt Structures and Airport Implications: Carrier Capital Structure Determines Counterparty Risk, AUA Negotiating Posture, and the Credibility of Capital Commitments

The gap between the most-leveraged and least-leveraged U.S. network carrier — American Airlines at 4.5× Debt-to-EBITDA and $30.5 billion in total debt versus Delta Air Lines at 2.6× with investment-grade ratings from Moody's (Baa2) and Fitch (BBB-) — directly affects how each airline approaches Airport Use and Lease Agreement (AUA) negotiations, capital commitments, and long-term rate-setting. For airport CFOs, finance directors, bond counsel, and rating analysts, an airline's debt structure appears in rating agency methodologies (Moody's 'Carrier Base Quality' scoring, published February 2023) and directly influences airport bond market perception. It shapes the airline's capacity to absorb rate increases under residual agreements, and it determines whether the carrier can credibly commit to multi-year AUAs that support airport capital programs. This article examines airline capital structure across secured debt (Enhanced Equipment Trust Certificates), unsecured obligations, and loyalty program securitizations, then traces how each layer of airline leverage flows through to airport-level credit risk.

The Three Largest U.S. Carriers Carry Between $18 Billion and $37.5 Billion in Total Debt, with Divergent Leverage Trajectories

Airline capital structures differ in both magnitude and direction. As of fiscal year-end 2024, the three network carriers reported the following balance sheet positions, drawn from their respective 10-K filings and earnings releases:

Delta's Q4 2024 earnings release shows that adjusted net debt declined by $3.6 billion during FY2024, with management guiding to leverage of 2× or less in 2025, and a long-term gross leverage target of 1×. United reduced total debt from $35.4 billion (FY2021) to $25.0 billion (FY2025), with debt-to-capital declining from 0.89 at its pandemic peak to 0.67 by December 2024. American, carrying the highest absolute debt load and the only negative-equity balance sheet among the three, reduced total debt by approximately $15 billion from its pandemic peak of approximately $46 billion through FY2025, but still reported $37.5 billion in total debt (including leases) at December 31, 2024, with a target of continued reduction.

These trajectories matter for airports because an airline's capacity to absorb rate increases — the mechanism by which residual and hybrid-residual airports recover costs — is a direct function of that carrier's leverage and free cash flow generation. An airline operating at 4.5× leverage with negative equity and $2.2 billion in free cash flow faces a narrower margin for absorbing increased airport charges than one operating at 2.6× with $3.4 billion in free cash flow and a stated deleveraging trajectory. Given American's $2.2 billion FY2024 free cash flow versus $3.4 billion at Delta, the difference in financial flexibility is measurable against the scale of airport capital programs, which commonly range from $1 billion to $5 billion at large-hub airports (DWU database, 2025).

EETCs Use Overcollateralization, Liquidity Facilities, and Section 1110 to Achieve Investment-Grade Ratings on Sub-Investment-Grade Airline Debt

Enhanced Equipment Trust Certificates (EETCs) are the primary capital markets instrument for airline aircraft financing. An EETC is a rated security that relies on a single airline issuer's credit, is secured by aircraft or engines, uses a liquidity facility covering 18–24 months of interest payments, employs overcollateralization relative to senior tranches, and relies on legal remedies under Section 1110 of the U.S. Bankruptcy Code or the Cape Town Convention.

EETCs are structured with tiered tranches — commonly designated AA (most senior), A, and B (most junior) — each with different Loan-to-Value (LTV) ratios and ratings. A representative structure, using American Airlines' 2019-1 EETC ($1.096 billion total) as an example:

This structure allows a carrier rated B+ or BB at the issuer level to issue senior EETC tranches rated AA or A — several notches above the airline's own corporate credit — because the structural enhancements (overcollateralization, liquidity facility, and Section 1110 protections) reduce the probability of loss to senior holders. KBRA's analysis of 107 EETC tranches from eight U.S. airline issuers that filed for bankruptcy between 2001 and 2005, covering $22 billion in original face value, found that ultimate A-tranche loss rates (including principal and interest) were less than one-half of one percent. Cumulative recovery rates for all EETC issues from 1994 through 2014 were 99.9% for A tranches, 98.6% for B tranches, and 97.0% for C tranches.

Section 1110 of the Bankruptcy Code (11 U.S.C. § 1110) provides that a debtor airline must agree to perform obligations under aircraft leases or secured financing, or cure defaults, within 60 days of a bankruptcy petition date — or the secured party may seek repossession. This "affirm or return" mechanism gives aircraft creditors a privileged position relative to unsecured creditors and creates the economic incentive for airlines to continue paying EETC obligations even in Chapter 11, because rejecting an EETC means losing the aircraft.

EETC issuance was limited in 2023–2024. S&P Global Ratings noted in March 2025 that United Airlines was the only airline to have issued publicly rated EETCs during the prior two years — $1.3 billion (Class A) in 2023 and approximately $1.35 billion (Classes AA and A) in 2024. The low issuance volume was attributed to two factors: (1) improved airline credit profiles with focus on debt reduction that enabled some carriers to self-fund aircraft purchases from free cash flow, and (2) lower-than-expected aircraft deliveries that reduced the availability of new collateral. S&P Global Ratings forecasted (March 2025) that EETC demand would rise beginning in 2025 as OEM delivery constraints eased and maturing EETCs required refinancing. American Airlines issued a $1.104 billion EETC (Series 2025-1) in October 2025 to fund deliveries of A321 XLR, 737 MAX 8, and other aircraft, the carrier's return to publicly rated EETCs after prioritizing bilateral structures.