Moody's lowers Qantas' rating

Moody's Investors Service has lowered the long-term rating for Qantas from Baa3 to Baa2, but considers the outlook for that revision to be 'stable'.

Moody's says that the downgrade reflects ongoing pressure on the airline in terms of fuel prices, competition and a challenging operating environment.

But Moody's was also keen to emphasise that, "Qantas remains one of only (a) few investment grade rated carriers in the Moody's ratings universe".

In its analysis the ratings agency also said that, "Moody's notes the outcome of the current industrial relations issues... However, the ratings downgrade reflects our view that Qantas' operating challenges will continue to pressure its financial profile".

And, "we expect Qantas' financial profile to remain outside the range required for the previous Baa3 rating, particularly over the next several years as it undergoes significant fleet reinvestment".

Related to that significicant fleet investment, the Agency also listed "the absence of adequate levels of free cash flow (defined as operating cash flow less capex and dividends) over an extended period" as another driver of the downgrade.

Desite its overall confidence in the airline, the Agency referred to "negative pressures" that could adversely affect the rating going forward.

These included any economic slide in the markets the airline services (including the domestic market), exceptionally high fuel prices and any blowout in capex.