Another Downgrade for Flying Roo as Moody’s Cuts Qantas Rating to Junk
By Vittorio Hernandez | January 9, 2014 5:25 PM EST
The fresh Qantas-Emirates code-sharing deal could spell the end of the national carrier’s international career, analysts said, in return for strong semblance of profitability on the domestic front.
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It was the second downgrade after Standard & Poor's also lowered to junk status in December Qantas's ratings after the financially troubled airline announced that it would axe 1,000 workers and warned of $300 million loss for the first half.
Besides losing money in its international business, Qantas also suffered a sharp decline in its core domestic business brought about by aggressive competition from rival Virgin Australia.
Ian Lewis, senior vice president of Moody's, explained, "These actions, which include capacity additions, have shifted the market dynamic against Qantas in a structural way."
He added, "As such, we expect that Qantas business risk and financial leverage will remain at elevated levels and inconsistent with an investment grade rating."
The Ba2 below investment grade rating by Moody's on Qantas from Baa3 with negative outlook is an indicator that the agency placed doubt on the ability of the Aussie air carrier to repay its debt. A junk rating could scare potential stock holders from buying shares of a listed company.
Mr Lewis pointed out that Virgin has caused negative structural changes for Qantas and its domestic business would remain challenged by the upstart airline's actions.
Qantas could get back its stable rating if the profitability of its international and domestic operations would improve at levels considered safe to sustain appropriate levels of debt.
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