Airline credit ratings . . . crunch!

The main — and really only — important reason for publicly held airlines to merge is to increase the value for investors. The idea in the industry is that a theoretically well-designed merger will increase this value, which is why big airlines are pursuing tie-ups so ardently. Along comes Moody’s to throw a well-deserved wrench into the gears: mergers in the airline industry could result in lower credit ratings, an analyst wrote. Giant airline mergers are risky undertakings, and investors would be wise to avoid them. So, instead of merger talk goosing the stock price of an airline, it might doom it. Worse credit means less financing for a deal, and airline mergers require lots of cash — hard to come by in an industry with declining liquidity.

Delta and Northwest investors resisted the merger fervor, but talk of an even less auspicious United-US Airways pairing rose. Lowered credit ratings may put a big damper on continuing negotiations.

Moody’s: Airline Consolidation Could Hurt Credit Ratings [Dow Jones via CNN]