Thursday, December 18, 2014   

Troubled Australian carrier Qantas admits severe headwinds, complains of foreign competition
(01-09 11:19)

Embattled Australian carrier Qantas admitted it was facing some of its toughest challenges as Moody's downgraded its credit rating to junk today.
The downgrades by Moody’s and Standard and Poor's as well follow a dire forecast in December of a half-year loss of up to A$300 million (US$267 million) and the decision to shed 1,000 jobs due to “immense'' cost pressures.
Qantas chief financial officer Gareth Evans (Pictured) said the downgrade was not unexpected and underscored the difficulties.
“Earnings conditions have deteriorated rapidly in recent months and we now face some of the most challenging circumstances in our history, including an uneven playing field in Australian aviation,'' Evans said in a statement to the Australian stock exchange.
“We continue to talk to the Australian government about options for resolving this situation.''
Qantas claims foreign ownership restrictions of 49 percent imposed when it was privatised in 1995 have put it at a disadvantage in relation to Virgin, which is now majority-owned by state-backed Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad.
It has been lobbying Canberra to ease the foreign investment cap or intervene with a capital injection to shore up its business.
December's grim forecast doused hopes that Qantas had turned a corner by signing a major partnership with Dubai-based Emirates and reversing its 2012 annual loss – the first since privatisation – with a modest A$5 million full-year profit announced in August.
Competitive pressures were singled out as a key concern by Moody's senior vice president Ian Lewis in Thursday's downgrade.
“The downgrade to Ba2 reflects a worse-than-expected impact on Qantas's credit profile of a marked sharp deterioration in the company's core domestic business, which has been a key supporting factor of its previous investment-grade rating,’’ said Lewis.
“The cause of the deterioration in the operating profile is largely due to the aggressive competitive actions by Qantas's key domestic competitor, Virgin Australia Holdings.''
Qantas is undertaking a structural review, which is due to report back next month on options speculated to include the potential divestment of its Jetstar assets in Asia.
Evans said Qantas stood ready to take “the necessary decisions now – however tough they might be -- to ensure we remain strong and disciplined in the years ahead.''
“In addition to cost-cutting, substantial reductions to our planned capital expenditure pipeline will be vital to ensure a return to positive free cash flow in FY15 and beyond,'' he said.
As at December 31, the airline said it had “strong liquidity'' including substantial cash reserves and undrawn committed bank facilities totalling approximately Aus$3 billion, with gross debt reduced by A$1 billion during the 2013 financial year and “no significant debt refinancing due until mid-2015.''

   
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