NEW YORK, Sep 30, 2008 (BUSINESS WIRE) -- Fitch Ratings has affirmed the Issuer Default Rating (IDR) and
outstanding debt ratings of FedEx Corporation (NYSE: FDX) and its
Federal Express Corporation subsidiary, as follows:

FedEx Corporation

--Long-term IDR 'BBB';

--Senior unsecured 'BBB';

--Unsecured credit facility 'BBB';

--Short-term IDR 'F2';

--Commercial paper program 'F2'.

Federal Express Corporation

--Long-term IDR 'BBB';

--Senior unsecured 'BBB'.

The ratings apply to approximately $1.8 billion in senior unsecured debt
obligations and a $1 billion revolving credit facility. The Rating
Outlook is Stable.

FedEx's ratings reflect the transportation company's strong market
position in the global transportation services industry, robust
liquidity position and expectations for ongoing free cash flow strength
despite facing the twin challenges of slowing global economic growth and
still-high fuel prices. Although FedEx's core express delivery volumes
have declined to pre-1998 levels in the U.S., demand continues to grow
in the company's ground package delivery business and FedEx Freight
continues to perform relatively well given the very difficult market
conditions in the less-than-truckload (LTL) sector.

To cope with the weakening economic environment, FedEx has significantly
lowered its capital spending forecast for fiscal 2009 and reduced
discretionary spending in other areas of the business, both of which
will help to preserve free cash flow as margins tighten. FedEx's credit
profile may weaken somewhat in the near term, but it is expected to
remain consistent overall with the current ratings. Risks include a
further significant weakening in the global economy and/or another steep
rise in jet fuel and diesel prices, both of which could put additional
pressure on free cash flow generation. Longer-term, changes to the
employment status of FedEx Ground's independent contractors could result
in meaningful increases to FedEx's operating costs.

With the cooling of the global economy, FedEx has seen demand for its
express delivery services wane. In the company's fiscal first quarter
ended Aug. 31, U.S. express package volume was down 5.2% versus the
year-earlier period and in-line with levels seen more than 10 years ago.
Adding further pressure to the FedEx Express unit, International
Priority volumes, which had been growing as U.S. volumes declined, were
flat in the quarter, reflecting, in part, the slowing of economies
outside the U.S. In addition to a general weakening of demand, a portion
of the decline in FedEx Express' volumes also can be attributed to
customers shifting their business into lower-cost networks as high fuel
surcharges have raised the cost of overnight express package deliveries.
This shift, along with market share gains and growth in FedEx Ground's
Home Delivery business, has helped to bolster package volumes in the
FedEx Ground network, which grew 4% (excluding FedEx SmartPost volumes)
in the company's fiscal first quarter. FedEx Freight also continues to
see volume growth, with market share gains driving a 5.1% increase in
pounds shipped per day during the quarter, despite the difficult LTL
market conditions.

As the market environment has become more challenging over the past two
years, FedEx's consolidated margins have declined, while growth
initiatives have driven capital spending higher. As a result, free cash
flow declined to $435 million in the twelve months ended Aug. 31, down
from $571 million in fiscal 2007 and $1.1 billion in fiscal 2006.

Despite the decline in free cash flow, FedEx's liquidity position
remains very strong, with $1.6 billion in cash and equivalents at the
end of the fiscal first quarter, augmented by access to a $1 billion
unsecured revolving credit facility. In fiscal 2009, FedEx has reduced
its planned capital spending by nearly $350 million from the fiscal 2008
level, which will help to support free cash flow even if operating cash
flow declines. Debt maturities over the next 12 months are relatively
heavy, however, with $500 million in unsecured notes coming due in April
2009 and another $500 million due the following August. Fitch currently
expects liquidity to be sufficient to repay the first maturity with
cash, but the company could seek to either refinance the second set of
notes upon maturity or temporarily fund the maturity with revolver
borrowings.

FedEx's credit metrics have been relatively stable over the past several
years. At the end of the fiscal first quarter, lease adjusted debt to
EBITDAR stood at 2.8 times (x), up slightly from 2.7x at both fiscal
year-end 2008 and 2007, but down from 2.9x at the end of fiscal 2006. At
the same time, EBITDAR to gross interest expense and rent coverage
declined slightly to 3.0x at Aug. 31, down from 3.1x at the end of both
fiscal 2008 and fiscal 2007 but up from 2.9x at the end of fiscal 2006.
With the potential for tighter margins over the next year, credit
metrics could weaken slightly from current levels, but Fitch expects
metrics to remain generally consistent with FedEx's 'BBB' ratings.

The greatest near-term risk to FedEx's ratings would be a further
significant decline in global market conditions and/or another spike in
fuel prices. FedEx recently has demonstrated some flexibility in
reducing both operating expenses and capital spending, and Fitch expects
the company could make further cuts in both to help preserve free cash
flow in an even more challenging operating environment. However, a much
deeper decline in the global economy than currently projected or another
dramatic rise in jet fuel and diesel prices could crimp free cash flow
and drive a material decline in FedEx's credit profile. Such a decline
may result in either Fitch revising FedEx's Rating Outlook to Negative
or downgrading the ratings.

Longer term risks also include the potential for adverse rulings in
legal challenges to FedEx Ground's independent contractor model that
could force the unit to reclassify contractors as employees. A change in
the contractors' status could depress the unit's margins, as well as
expose it to potential back taxes and penalties imposed by the Internal
Revenue Service (IRS) and various state tax authorities. The IRS has
already indicated that it likely will assess $319 million in back taxes
and penalties related to the alleged misclassification of employees on
FedEx's 2002 tax return, and it is looking into similar issues related
to the company's 2004 through 2006 returns. If FedEx is required to
recognize contractors as employees, the effect on FedEx's credit profile
could be material and could ultimately contribute to a revision in the
either the ratings themselves or on the Rating Outlook.

Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality, conflicts
of interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section of
this site. The issuer did not participate in the rating process other
than through the medium of its public disclosure.

SOURCE: Fitch Ratings

Fitch Ratings, Chicago 
Stephen Brown, +1-312-368-3139 
William Warlick, +1-312-368-3141 
Media Relations, New York 
Cindy Stoller, +1-212-908-0526

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