Oct. 30, 2009 (Business Wire) -- Fitch Ratings has affirmed General Dynamics Corporation's (GD) long- and short-term Issuer Default Ratings (IDRs) and outstanding debt ratings as follows:

--Long-term IDR at 'A';

--Senior unsecured debt at 'A';

--Credit facilities at 'A';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

The Rating Outlook is Stable. Approximately $3.9 billion of outstanding debt is covered by these ratings.

GD's ratings reflect the company's:

--Strong free cash flow;

--Financial flexibility;

--Solid credit metrics for the current ratings;

--High defense spending levels;

--Competitive position in business jets; and

--Large backlog.

Rating concerns focus on:

--Cyclical weakness in the business jet market;

--Potential for large acquisitions or share repurchases;

--Some risks to core defense spending after FY2010;

--The impact of eventual declines in defense spending for operations in Iraq and Afghanistan;

--A-12 litigation; and

--GD's sizable pension deficit.

GD has $700 million of debt maturing in August 2010 as well as an $815 million 364-day revolver expiring in July 2010, but Fitch does not consider these to be significant credit issues because of GD's liquidity, cash flow, and access to the capital markets.

Liquidity as of Oct. 4, 2009 totaled $2.5 billion consisting of $1.4 billion in cash, the $815 million revolving credit facility that expires in July 2010 and a $975 million revolver that expires in December 2011, less $705 million of short-term debt and current debt maturities. For the latest twelve months (LTM) ending Oct. 4, 2009, leverage (gross debt-to-operating EBITDA) was 0.9 times (x) compared with 1.0x at the end of 2008 and 0.8x in 2007. Adjusting debt and EBITDA for operating leases, these ratios were 1.3x, 1.4x, and 1.2x, respectively.

GD's cash flow continues to support the company's ratings, but cash deployment exceeded free cash flow (cash from operations less capital expenditures and dividends) in 2008, and cash flow has declined so far in 2009. Free cash flow was approximately $2.1 billion in 2008, up from $2 billion in 2007. In the first three quarters of 2009 free cash flow was $664 million compared to $1.6 billion in 2008, with the difference largely attributable to lower advances. Fitch expects GD's 2009 free cash flow to be approximately $1.5 billion. Cash deployment remains Fitch's key credit concern given past acquisition activity, though this has moderated in the last couple of quarters. Share repurchases have also declined in 2009, with only $109 million in the first nine months, down more than $900 million.

Fitch expected the business jet market to decline in 2009, but the sector turned down more quickly and severely than anticipated.