Qantas hit by Moody’s credit downgrade
February 1, 2012 Leave a comment
High fuel prices, strong competition and a challenging operating environment have prompted Moody’s to downgrade Qantas Airways Ltd’s credit rating, bringing the airline just one notch away from losing its investment-grade rating, according to media reports.
Qantas is expected to cut back its capacity and launch a review of discretionary spending in an effort to address the factors that led to the downgrade, according to The Australian. Moody’s cut Qantas’ long-term unsecured rating from Baa2 to Baa3 and its short-term rating from P-2 to P-3, and came after Air New Zealand warned of a difficult year to come. Baa3 puts Qantas one notch above a non-investment grade rating, or junk status. In a statement, Qantas said it remains in a strong funding position, citing its cash balance of more than $3 billion and strong cash flows, the reports said.
A Moody’s official said the airline’s credit rating has been under pressure for several years. “The ratings downgrade reflects our view that Qantas’ operating challenges will continue to pressure its financial profile such that financial leverage is expected to remain above the level consistent with the previous Baa2 rating,” the official said, according to Fairfax Media. Moody’s put Qantas on review for a potential downgrade in October. The airline was last downgrade by Moody’s ― from Baa1 to Baa2 ― in February 2009.
Qantas remains one of only three airlines in the world to retain an investment-grade credit rating from Moody’s, alongside Air New Zealand and American airline Southwest.
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