Moody’s Investors Service has upgraded Qantas’s credit rating in recognition of the airline’s improved financial performance.
Qantas’s senior unsecured rating has risen one notch to Ba1, from Ba2 previously, Moody’s said in a statement on Friday.
The ratings agency noted Qantas had been paying down debt and reducing secured debt in recent times, as well as cash funding several aircraft purchases and retiring debt on a number of aircraft.
This had led to an increase in the number of unencumbered aircraft and the value of the unencumbered fleet, Moody’s said.
“The upgrade of Qantas’s senior unsecured rating to Ba1 reflects the considerable progress Qantas has made in improving its financial and operating profile, which has allowed the company to reduce debt levels including secured debt in its capital structure,” Moody’s vice president and senior credit officer Matthew Moore said in a statement.
“This combined with increases in the unencumbered fleet has improved Moody’s expectations for a loss given default for Qantas’s senior unsecured debt.”
Moore said these positive trends were expected to continue over the next 12 to 24 months, noting the continued improvement in the operating environment and its expectations for improvement in Qantas’s financial performance.
“Moody’s expects the company to continue to make solid progress on its transformation program, which combined with a more conservative approach to capacity management in the domestic market – and the benefits from lower fuel prices and a weaker Australian dollar – should all lead to improving earnings and credit metrics over the next 12-18 months,” Moody’s said.
“The positive outlook captures Moody’s expectation that the current positive conditions in the domestic market will be maintained and that Qantas will continue to maintain strong levels of liquidity.”
Despite the ratings upgrade, Moody’s has kept Qantas’s credit ratings below investment grade, a position the airline has been in since January 2014.
Qantas was expected to report a statutory net profit in the vicinity of $600 million, according to market estimates, when it hands down its 2014/15 full year results on August 20.
Its domestic rival Virgin posted a statutory net loss of $93.8 million for 2014/15. Virgin chief executive John Borghetti said on Friday the airline group was on track to return to profitability in the current financial year.