Moody’s has joined Standard & Poor’s in downgrading Qantas’s credit rating from an investment grade to a ‘junk’ rating, potentially leading to increased borrowing costs for Australia’s largest airline.
The Moody’s downgrade comes as little surprise, given it had announced it was reviewing its grading status for Qantas following the airline’s December revelations it is on track to post a first half loss of $300 million. Standard & Poor’s soon after downgraded Qantas to junk.
Qantas is still promising to make tough decisions to bring the company back onto a financially sustainable footing.
“We will make the necessary decisions now – however tough they might be – to ensure we remain strong and disciplined in the years ahead,” Qantas chief financial officer Gareth Evans said in a statement.
“In addition to cost-cutting, substantial reductions to our planned capital expenditure pipeline will be vital to ensure a return to positive free cash flow in FY15 and beyond.”
Evans said Qantas now faced “some of the most challenging circumstances in our history”.
As well as retrenching 1,000 staff, those tough measures could include selling off stakes in the Qantas Frequent Flyer program and Jetstar, selling and leasing back aircraft, and selling and leasing back its Sydney airport domestic terminal.
The downgrade comes as the political class continues to debate the merits of supporting Qantas and changing the Qantas Sale Act. MP Dan Tehan, who heads the Coalition government’s ‘friends of tourism’ group, used a front page editorial in The Australian on Thursday to call for a repeal of the Qantas Sale Act.
“The Qantas Sale Act was designed to protect the national carrier from international influence that would see it stop calling Australia home. The reality is it that it acts as a regulatory straitjacket, preventing Qantas from being a true competitor both within and beyond Australian airspace,” he wrote.
The opposition Labor Party, meanwhile, continues to oppose changing the Qantas Sale Act, but instead supports the federal government taking minority shareholding in the airline.
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