Qantas faces credit rating downgrade

Thursday, 13 Jun, 2006 0

Standard & Poor’s Ratings Services has revealed that ever spiralling fuel prices and costs of restructuring are placing significant pressure on Qantas Airways’ finances and it warned that the airline faced a possible credit rating downgrade.

S&P have affirmed Qantas BBB plus A2 corporate credit ratings on Qantas but has revised the outlook to negative from stable, giving a strong indication that the airline could potentially face a rating downgrade.

It said the outlook revision reflected pressure on Qantas’ cash flow from high fuel prices and restructuring charges and the prospect that fuel prices could remain high for an extended period.

“Although one of the best-hedged airlines globally for fuel, Qantas’ earnings are particularly sensitive to the current high fuel prices because of the roll-off of its very favourable fuel hedges enjoyed in fiscal 2005,” said Jeanette Ward, credit analyst at S&P’s Corporate & Infrastructure Finance Ratings group.

Qantas has undertaken a $3 billion restructuring program to offset the negative impact of rising jet fuel costs.

Ms Ward said that even though the pressure on Qantas’ earnings was cushioned by strong liquidity, the airline’s credit metrics remained vulnerable to any faltering in its growth and cost reduction targets and increasing competitive pressure.

Qantas, which lifted its fuel surcharge on tickets in April in response to rising fuel costs, has said its 2005/06 fuel bill is expected to reach $2.9 billion, about $1 billion higher than for 2004/05 and the fuel bill was expected to hit $3.9 billion in 2006/07 after hedging.

Report by The Mole

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