Qantas has had its credit rating downgraded to junk status, following the beleaguered airline’s decision to sack 1,000 workers amid heavy financial losses.
Leading credit agency Standard & Poor’s has revised Qantas’s rating from BBB-(outlook stable) to BB+(outlook negative), which is below the lowest investment grade.
This status is known as junk by traders as it effectively recommends stock should not be actively considered. S&P said “intense” competition from rival airlines had weakened Qantas’s position, adding that it doesn’t anticipate the business regaining its BBB- status “in the near term”.
The withering downgrade comes just a day after Qantas announced it will be shedding 1,000 jobs in response to half-year losses of $300m.
Qantas, which said it is embarking upon a $2bn cost-cutting exercise over the coming three years, has pleaded with the government to relax foreign ownership rules it believes are hampering its ability to compete with rival Virgin, which receives overseas backing.
Gareth Evans, Qantas’s chief financial officer, said the credit downgrade was not unexpected.
“It highlights the unprecedented pressures that the Qantas group is facing from several external forces but particularly from an uneven playing field in the Australian aviation market,” he said.
Insisting that Qantas remains in a “strong financial position”, Evans added: “We are in continuing discussions with the Australian government regarding the uneven playing field in the local aviation sector, which has distorted the fundamentals of the market.”
Qantas shares fell by more than 11% yesterday and were placed in a trading halt ahead of S&P’s announcement.
Tony Abbott has rebuffed calls from Labor and unions for the government to intervene to aid Qantas.
"If we subsidise Qantas, why not subsidise everyone?" Abbott said on 3AW.
"If we subsidise everyone, that's just a bottomless pit into which we will descend and if we offer a guarantee to Qantas then why not offer a guarantee to everyone?"
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