Finance Finance News Qantas at risk of ratings downgrade

Qantas at risk of ratings downgrade

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Qantas will need to come good on its promise to improve its earnings and lower debt in the next six months if it is to avoid another downgrade to its credit rating.

Ratings agency Moody’s has reaffirmed its Ba1 credit rating for Qantas, which is one step below investment grade, but says the outlook remains negative.

A further downgrade to its credit rating could push up the airline’s borrowing costs.

Qantas on Thursday posted a record $2.8 billion loss but chief executive Alan Joyce expects to return the airline to profitability in the first six months of 2014/15.

If the airline fails to do that, Moody’s senior analyst Matthew Moore says it can expect to see its rating downgraded.

“We will continue to closely monitor the carriers plans to execute on its cost reduction initiatives, improve profitability in its core domestic business and gain traction in returning its mainline international operations to profitability”, he said in a statement.

“We expect to see improvements in earnings and leverage level, and any lack of progress in this area over the next six months would likely lead to a rating downgrade.”

Moody’s downgraded the carrier’s credit rating to junk status in January after the airline flagged a sharp decline in its earnings and a large first half loss.

But Mr Moore said the agency could change the ratings outlook to stable if Qantas was able to restore both its domestic and international businesses to profitability.

Qantas haemorrhaged more than $7 million a day in the past year, largely because of its profit-draining battle with rival Virgin and a poor performing international division.

But the net loss figure was skewed by a $2.6 billion writedown to the value of the airline’s international fleet.

Excluding that and other one-offs, the airline’s underlying pre-tax loss of $646 million was better than expected and saw Qantas shares rally on Thursday.

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