Moody’s has a bleak assessment of Qantas’ half-year results today, warning that the airline’s international business could drag ratings down further.
Qantas has a Ba1 corporate family rating and Ba2 senior unsecured long term rating from Moody’s, with a negative outlook.
From Moody’s senior VP Ian Lewis:
While the 1H 2014 results are within our expectations overall and factored into the current ratings which were downgraded earlier in the year, the extent of earnings reversal in the international side of Qantas’ operations (-7% in revenue and more than 280% negative movement in the amount of operating loss, both on a PCP basis) is a further concern, at a time when its domestic operations are experiencing unprecedented pressure.
Moody’s will closely observe the carriers plans to not only boost profits in its core domestic business but also very importantly, lay out a roadmap to return its mainline international operations to profitability.
The trajectory for restoration of international’s return to profitability would now appear to be some considerable way off and this delay in recovery increases the pressure on the current negative outlook.
Qantas’ position could change significantly with government support but neither the airline nor government revealed details of any such arrangement today.
“Any such support, depending on its final form, will be credit positive for the carrier,” Moody’s stated. “Moody’s will observe any potential for positive credit impact if and when such counter-measures are announced.
“On the other hand, further negative rating pressure could evolve if Qantas is unable to restore the core profitability of its international and domestic businesses or reduce debt to appropriate levels, commensurate with its sustainable earnings.
“Financial metrics that Moody’s would look for include Debt/EBITDA remaining above 5.0 x on a sustained basis. In addition, a material deterioration in liquidity could impact the carrier’s ratings.”