Our PlaneBusiness Brown Bag Analyst sent me a note last week after Fitch Ratings published their credit update on the airline sector, and he asked me, “How long do you think it will be before one of the airlines has its credit rating downgraded?”

I should have made a contest out of it for all of you.

Then again, it didn’t take long.

Today Fitch Ratings downgraded the debt of Southwest Airlines. The downgrade affects the issuer default, senior unsecured debt, and bank credit facility ratings of Southwest, and applies to about $1.6 billion in debt. Fitch said its rating outlook for Southwest is negative. The issuer default, senior unsecured debt and bank credit facility ratings were cut to ‘A-‘ from ‘A’.

We noted in last week’s PlaneBusiness Banter that Southwest had announced a new $500 million stock buy back — and as longtime readers of me are aware — generally I am not a big fan of buy backs.

In this case, given the industry metrics we are looking at, I thought the announcement by Southwest was ill-timed. It  appeared to me that  the airline was making a play to increase market support for its stock price, at a time when it might be a better idea to keep its cash in the bank.

Today the airline paid the price for the move, made as it was against an increasingly problematic industry financial background. Fitch noted the buyback in its reasoning for the downgrade, adding that the downgrade reflects its expectation that a fragile airline industry over the next few quarters will weaken Southwest’s credit profile.

Ticker: Southwest Airlines, (NYSE:LUV)

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