Qantas Airways Ltd., Australia’s largest carrier, had its credit rating cut for the first time in more than 15 years by Moody’s Investors Service as the global recession hammers demand for air travel. Qantas tumbled to a record low in Sydney trading after its long-term rating was lowered one level to Baa2, two grades above junk. The outlook is stable, Moody’s said in a statement today.

The downgrade may make it more expensive for the Sydney- based carrier to refinance A$1.9 billion ($1.2 billion) of bonds due up to 2016, as it also seeks funds to help pay for A$35 billion of new planes on order. Qantas this month said half-year profit slumped 66 percent, reflecting the effect of record fuel- prices followed by declining demand.

“Qantas’ credit profile has been adversely impacted by relatively high debt and strained profitability and cash flow, putting pressure on the rating at a time of worsening industry fundamentals,” Moody’s analyst Ian Lewis said in the statement. Slumping demand “is likely to be a principal contributor to reduced earnings for the year ahead and beyond.”

The carrier fell 4.3 percent to A$1.68 at the close of trading in Sydney today. It has lost 36 percent this year, the worst performer among the 15 stocks in the Bloomberg Asia- Pacific Airlines Index.

Traffic Tumbles

Qantas was rated Baa2 by Moody’s in 1993 and upgraded to Baa1 in October 1997. Asia-Pacific passenger traffic sank 9.7 percent in December, while freight volumes tumbled 26 percent, the International Air Transport Association, or IATA, said on Jan. 29. The traffic declines for both passengers and freight were the biggest of any region, the trade group added. The industry may lose as much $2.5 billion this year, with carriers in the Asia-Pacific region accounting for almost half of the deficit, according to the IATA.

“The aviation sector is experiencing a high degree of volatility worldwide, and Qantas has had to confront that,” Qantas Chief Executive Officer Alan Joyce said in a statement. “In the current environment, we have increased our focus on earnings preservation and conservative cash management.”

The airline has cut capacity, reorganized routes and sold A$500 million of new shares to help pay for the new planes. The airline also lowered its dividend to 6 cents a share from 18 cents a year earlier.

source: By Chan Sue Ling(www.bloomberg.com)