Investing.com -- Fitch Ratings has upgraded United Airlines’ Issuer Default Rating (IDR) from ’BB-’ to ’BB’ on Friday, with a positive outlook. The upgrade is primarily driven by United’s reduction of its adjusted debt balance by $3 billion in 2024, which is 8% of the previous year’s adjusted debt balance. The company’s EBITDAR leverage concluded 2024 at 3.7x, close to the positive rating sensitivity of Fitch.

The company’s net leverage fell to 2.1x as it continues to maintain high cash balances. Fitch is projecting that United’s gross leverage will decrease towards 3x in the coming years, in line with ’BB’ rating tolerances. The upgrade is further backed by higher-than-anticipated Free Cash Flow (FCF), propelled by reduced capital expenditure and increased profitability.

The positive outlook is based on Fitch’s expectation for ongoing debt repayment and strong financial performance compared to peers. Investments in United’s network and loyalty program offerings have strengthened its market position in its primary hubs, setting the stage for heightened profitability.

In addition, Fitch has upgraded or confirmed United’s enhanced equipment trust certificate (EETC) ratings. These include various certificates due in the next few years, with values ranging from $94.6 million to $549.4 million. These upgrades are mainly influenced by the one-notch upgrade of United’s IDR to ’BB’ from ’BB-’.

United’s credit metrics are improving due to debt repayment, positive results from strategic initiatives, lower fuel prices, and a healthy operating environment. The company’s liquidity remains high, which is driving net metrics roughly in line with higher-rated Delta Air Lines (NYSE: DAL ). United is aiming to achieve adjusted net leverage below 2x in 2025, down from 2.9x at the end of 2023.

Fitch expects United to generate significant FCF in 2025, driven by a healthy operating environment and reduced capital spending due to delays in aircraft deliveries. United’s projected cash flow generation and elevated liquidity position are expected to well cover upcoming capital expenditures.

United’s investments in its network and loyalty program offerings have improved its market position in strategic hubs across the U.S. This allows the company to benefit from premium pricing compared to its peers. The company’s profit margins were flat in 2024 but have consistently performed well compared to peers. Fitch expects flat or slightly increasing margins in the next few years.

Fitch anticipates that demand for air travel will remain robust throughout 2025, as evidenced by recent reports of solid booking trends through the first quarter and the ongoing improvement in business and premium travel. United’s EETC transactions are secured by various aircraft types, and the tier classifications for each of these aircraft types remain unchanged from Fitch’s prior review.

Fitch has assigned the maximum notching of ’+2’ to subordinated tranches for affirmation. This maximum affirmation factor is driven by the collateral pools for these transactions, which are believed to be highly likely to be affirmed in a bankruptcy scenario. United’s upcoming debt maturities are sizeable but manageable, with principal repayments totaling $2.9 billion in 2025, $4.8 billion in 2026, and $2.3 billion in 2027.

United’s debt structure primarily consists of aircraft backed EETCs, secured term loan and notes backed by the company’s slots/gates/routes collateral, and a secured note backed by its loyalty program. The company also has a number of unsecured obligations that arose as part of the government Payroll Support Program.

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