Standard and Poor's said on Friday it revised Delta Air Lines Inc.'s (DAL) CreditWatch rating outlook to "developing" from "positive," reflecting the No. 3 U.S. carrier's strained liquidity due to rising fuel costs that have plagued the industry.

"The CreditWatch revision reflects the renewed pressure on Delta's liquidity from higher fuel prices, which could add up to $1 billion in costs during 2005," credit analyst Philip Baggaley wrote.

U.S. airlines, which had just begun to recover from financial devastation inflicted after the Sept. 11 attacks, have been hit hard by rising fuel costs and intense competition.

A developing CreditWatch status means the rating for a company may be lowered, raised or affirmed. S&P officials have said such actions often take place within a few months.

S&P rates Atlanta-based Delta's corporate credit "CC" and its senior unsecured debt "C," the lowest grade other than default. It said the credit rating would be lowered upon a default or a distressed debt exchange, saying it is already at the lowest level consistent with a company's paying its debt.

Delta's chief executive, Gerald Grinstein, said Wednesday that the airline expects to face liquidity issues over the next two years as higher oil prices add up to $1 billion to its costs. However, he added the airline still should be able to avoid Chapter 11 bankruptcy protection, unlike competitors, UAL Corp.'s (UAL) United Airlines and US Airways Group Inc. (UAIR).

Atlanta-based Delta avoided filing Chapter 11 late last year when it managed to win $2 billion in wage and benefit concessions from its unions and $1.1 billion in financing from GE Commercial Aviation Services and American Express Co .

Delta, which has slightly more than $1 billion in cash on hand, must make $450 million in payments on its pension plans this year and has $630 million in debt repayments coming due near the end of the year.

Rival airline American Airlines, controlled by AMR Corp. (AMR), earlier this week said its additional fuel costs this year could reach $1.4 billion if energy prices stay at current levels.