Qantas boss Alan Joyce is walking a fine line between lobbying for government support to fight off foreign-owned Virgin Australia, and convincing investors that its balance sheet will weather recent credit rating downgrades.
The Federal Government this week said it would lift foreign ownership restrictions on the national carrier but would not provide a debt guarantee.
Joyce told the Australia-Israel Chamber of Commerce today that Qantas needed government support to operate in a “distorted playing field”, amid high fuel costs and a loss-making capacity war with Virgin.
He acknowledged that the loss of Qantas’ investment-grade credit rating would add tens of millions of dollars to its financing costs, but argued that airlines carried junk ratings far more often than not.
Here’s what he said:
Most airlines in the world are sub-investment rated. Most of our commercial colleagues in this space – all of the American airlines, all of the European airlines – a lot of airlines around the globe are sub-investment grade.
It does mean, in relation to where we stand, that the cost of financing going forward is going to be more expensive for us. I think we’ve communicated to the market that it’s in the tens of millions of dollars at [Qantas’ current] grade. But that takes awhile to wash through, obviously.
And access: usually when you’re trying to secure finance against an aircraft, when you’re investment grade, you’re top of the list, but not obviously we’re against a lot of companies out there, a lot of airlines.
We’ll manage that. [British Airways] has lost their investment-grade rating twice, gained it back, lost it again. They’ve managed that.
We’re comfortable that Qantas is a very healthy airline; we’ve got a strong balance sheet, we’ve got a lot of assets. We’ve got some assets that we are selling, so we’ve got a lot of flexibility. We’ve got a lot of aircraft and can secure against them if we need cash in the future.
So we are a very healthy airline and are in a very strong position but we have to manage and work through this loss of rating and we have a plan to do that.
Southwest Airlines and Virgin’s part-owner Air New Zealand are the only two airlines with investment-grade ratings from Moody’s currently, while Southwest and Deutsche Lufthansa have investment-grade ratings from S&P.
S&P explained in December that Qantas, like Lufthansa, was a full-service, national airline that targeted premium travellers but depended far more heavily on local economies because of Australia’s location, was more expensive to run than its peers in Asia, and had “week earning prospects in the near-term”.
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