Despite a weak Q3 guidance, Fitch restores Delta Air Lines (DAL.US) investment grade rating

On Tuesday, Fitch Ratings is expected to upgrade Delta Air Lines' (DAL.US) credit rating to investment grade, citing an improvement in the airline's balance sheet over the past three years. Fitch is upgrading Delta's rating from "BB+" to "BBB-," with a stable outlook. Moody's has an investment grade rating on the company, while S&P has a junk rating.

The Atlanta-based airline's rating was downgraded to junk during the pandemic, when travel demand plummeted and the industry was hit hard. A junk credit rating makes it more difficult and expensive for a company to raise capital.

Since the pandemic, Delta has focused on paying down debt and restoring its investment grade rating.

Fitch said that after the pandemic, Delta's credit metrics have improved significantly, as the company has reduced its total debt and operating leases by about $11 billion over the past three years.

Fitch expects travel demand to remain healthy through 2024, which should help Delta generate free cash flow. Fitch expects the company to reduce unsecured assets to $30 billion by the end of this year.

Delta reported third-quarter earnings that missed Wall Street's expectations last Thursday, as excess capacity weighed on fares in the low-cost market. The news weighed on Delta's shares, which fell more than 10% in premarket trading and dragged down the airline sector.

But Fitch said it expects Delta to remain one of the most profitable airlines, citing an uptick in business travel bookings and a continued demand for premium travel.

As of Tuesday's close, Delta was up 7.02% at $46.02.