31-Jan-2012 5:57 PM

Qantas Airways says its financial position remains 'strong' despite Moody's credit rating downgrade

The Qantas Group reaffirmed (31-Jan-2012) its "strong financial position" despite the decision by Moody’s Investors Service to downgrade the company’s long term senior unsecured credit rating. The Group’s credit rating with Moody’s remains investment-grade at Baa3/stable, downgraded from Baa2. The short term rating has also been lowered from 'P-2' to 'P-3'. Moody's stated the 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". In response, Qantas noted that it "continues to be one of only two airline companies rated investment-grade by both Moody’s and S&P". With operating cashflow strengthening this financial year, a cash balance of more than AUD3 billion and the ability to adjust capital investment as appropriate, the Qantas Group remains in a "strong funding position". The Group stated it has mandated financing in place for its 2011/12 aircraft deliveries and intends to fund the balance of its future capital commitments from operating cashflow, cash reserves and available debt. [more - original PR]  

Moody's Investors Service: "The ratings downgrade reflects Moody's expectation of ongoing pressure on Qantas' credit profile from the combined effects of high fuel prices, strong competition and difficult operating environment. Qantas' credit profile had been subject to ongoing pressure over several years and more particularly since March 2011 when the outlook was changed to negative. These factors are behind the rating downgrade. Moody's notes the outcome of the current industrial relations issues, which have plagued the airline over the last year or more, should be manageable for the ratings, subject to final arbitration by Fair Work Australia (FWA)", Ian Lewis, VP and senior credit officer and lead analyst. Source: Company statement, 31-Jan-2012.

Qantas Group: "There has been a significant deterioration in the global aviation operating environment over the past 12 months. Fuel prices have reached the highs of 2008 again and remain at elevated levels, adding around AUD450 million to the Group’s fuel bill in the first half of 2011/12, and the sovereign debt crisis in Europe has brought further uncertainty to global travel markets.
However, the depth of the Group’s portfolio of businesses gives it the flexibility and resilience to manage the effects of operational disruptions and economic volatility, Qantas, Jetstar, Qantas Frequent Flyer and Qantas Freight generate diverse revenue streams that stabilise earnings through the cycle. The Group has a clear strategy for the future, based on its strong domestic airline businesses, turning around Qantas International, the continued growth of Qantas Frequent Flyer and targeted expansion in Asia. Business transformation initiatives are underway across the Group to increase efficiency and competitiveness. This strategy is underpinned by a prudent approach to capital management," Source: Company statement, 31-Jan-2012.

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