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Standard & Poor’s downgraded the debt of some of the nation’s largest carriers on Friday, saying high fuel prices are likely to cause heavy losses this year at American, United and Northwest Airlines.

S&P airline analyst Philip Baggaley said that in general, carriers face "perhaps a bit greater risk of liquidation" although he quickly added, "We think the airlines we’ve reviewed here are large and viable airlines."

He said the airlines have enough cash for the next several quarters. But he is more concerned about later next year because some of that cash is likely to be gone, and because the relief on lending covenants won by American, United and Northwest will be expiring.

"If we’re still in this weak environment a year from now, it could begin to get more uncomfortable," he said on a conference call.

Airlines have been reducing capacity and raising prices to pay for more expensive fuel, which is now the single largest expense at most carriers. But Baggaley pointed out that they’re in their best cash-generating months right now with the busy summer travel season.

He lowered the long-term corporate credit ratings on American, the nation’s largest carrier and its parent, AMR Corp., further into junk — to ‘B-’ from ‘B’ — and did the same for United and its parent UAL Corp. The outlook for both is negative. Northwest Airlines Corp. also went one notch further into junk, to ‘B’ from ‘B+’ with a negative outlook.

Baggaley said AMR could lose $2 billion or more this year, not including accounting charges pay day loans. He wrote that American is modernizing its fleet "to replace fuel-thirsty MD80s with new B737-800s, but this will take a long time, as its fleet includes more than 300 MD80s."

Baggaley wrote that United parent UAL Corp (UAUA, Fortune 500).’s $2.9 billion in cash and short-term investments at the end of June will be adequate in the short run. But he expects losses of more than $1 billion for 2008 not including accounting charges, with further losses (possibly smaller) in 2009.

He said Northwest’s loss for the year could be more than $500 million before accounting charges. It had a second-quarter operating profit of $170 million — the best of the hub-and-spoke carriers. But it also benefited from a $250 million gain on hedges that will help pay for future purchases of expensive fuel.

He called Northwest’s performance "relatively good" but said its profit and cash flow outlook is still weak, and said he expects Northwest’s unrestricted cash of $3.3 billion to erode as the year goes on.

In afternoon trading, AMR (AMR, Fortune 500) shares rose 33 cents, or 4%, to $8.48. United shares rose 42 cents, or 5.6 percent, to $7.87 and Northwest (NWA, Fortune 500) shares rose 17 cents, or 2 percent, to $8.46. 

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