Qantas credit rating at 'junk' status

RATINGS agency Standard and Poor's has lowered its credit rating for airline Qantas to BB+, which is considered below investment grade.

Credit rating agencies are reassessing their view of Qantas shares. Picture: AFP.

Ratings agency Standard and Poor's has lowered its credit rating for airline Qantas to BB+, which is considered below investment grade.

S&P's outlook for the group's credit rating was also negative.

It also lowered the airline's corporate debt to BB+ from BBB- and placed it on negative watch.

That means the group's credit rating is at junk status, increasing the cost of financing for Qantas and restricting access to investors that do not invest in lower rated companies.

S&P said in a statement the downgrades reflect its view that intense competition in the airline industry had weakened Qantas' business risk profile to "fair" from "satisfactory", and financial risk profile to "significant" from "intermediate".

"We don't expect Qantas to recover to a credit profile commensurate with a 'BBB-' rating in the near term," it said. Qantas shares are currently in a trading halt but plunged 11.2 per cent to $1.07 on Thursday.

The airline announced on Thursday it would cut 1000 jobs and flagged an underlying half year loss of up to $300 million.

Qantas shares slumped a further 4.5 per cent when the resumed trading before recovering slightly Ratings agency Moody's has also put its Baa3 credit rating for Qantas on review for downgrade.

S&P said it recognised that Qantas has strong financial flexibility and a good track record of responding to earnings pressures through cost cutting and other measures.

"However, we believe in the current circumstances, the benefits would take time to realise and the positive impact would not be sufficient to outweigh the pressure on Qantas' stand-alone credit profile," it said.

Prime Minister Tony Abbott has suggested he would not back the government guaranteeing Qantas' debt but has hinted at allowing greater foreign investment in the airline to above 49 per cent to help its balance sheet.

The airline has blamed difficult market conditions and intense competition from rival Virgin Australia for its predicament. It has called on the federal government to block Virgin's planned $350 million equity raising, which will see its three major shareholders - Air New Zealand, Etihad and Singapore Airlines - increase their ownership stake.

Qantas says it is looking to find $2 billion in savings over the next three years.

It is also considering possibly selling off part of its profitable frequent flyer division or Jetstar as it tries to unlock capital and find a path back to profitability.

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