Qantas rebuked for putting profits ahead of fleet upgrades

QANTAS Airways has favoured payouts to shareholders ahead of upgrading its fleet, according to a new report from credit ratings agency S&P Global.

Qantas chief executive Alan Joyce. Picture: AFP

QANTAS Airways has favoured payouts to shareholders ahead of upgrading its fleet, ­according to analysts at ratings agency Standard & Poor’s.

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The flag carrier may have to pay heavily to upgrade its fleet “at an inopportune time” as a result, a new report by S&P Global Ratings says.

“Since its financial turnaround in fiscal 2015, Qantas has used surplus capital to fund shareholder returns rather than to grow invested capital,” S&P analyst Graeme Ferguson said on Thursday. “We do not view this as sustainable.”

The average age of aircraft in the Qantas fleet had risen by two years since 2015, Mr Ferguson said, and the airline had now ditched its target ­average age of between eight and 10 years. The fleet’s average age is now about 10 years.

While that is not old compared with global standards, it is older than those of most of its peers, including Emirates, Ryanair, Air New Zealand, ­Virgin Australia, Singapore Airlines and Cathay Pacific.

S&P warned that reduced investment by Qantas had ­offered a temporary boost to its financial results but was problematic in the long term.

Qantas may have to pay heavily to upgrade its fleet.

“Despite much fanfare surrounding the new Dreamliner, Qantas’s aircraft investment has remained subdued over the past few years,” Mr Ferguson said.

Although shareholders have benefited from the company’s decision in the short term, it signals a looming funding issue. “Qantas may face a ­sizeable fleet-funding task at an ­inopportune time,” Mr ­Ferguson said.

“That’s because the airline’s investment in new aircraft may coincide with a resumption of company tax payments.

“The airline’s guidance indicates that investment won’t grow until at least the year ending June 2020, by which point its capital expenditure will have been constrained for a period of seven years.”

In a statement on Thursday, Qantas rejected the criticism. “Our ability to meet our long-term capital expenditure needs are clear. Our balance sheet is as strong as it has ever been,” the statement said.

“Our fleet is constantly under renewal and is competitive in every market we serve.

“In short, we’re always ­investing in fleet and we’ll ­continue to manage our capital expenditure in the best ­interests of our business.”

Speaking at an analyst briefing in Melbourne on Thursday, Mr Ferguson also said Virgin Australia’s fleet was “young by domestic and global standards and we believe it can afford to take a limited capital holiday without becoming uncompetitive”.

However, he warned both airlines that the lack of ongoing investment in new fleet could open the way for a new competitor to enter the Australian market.

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