Ratings Group Moody’s Backs ‘Credit Positive’ Moves At Qantas

By Glenn Dyer | More Articles by Glenn Dyer

Ratings group, Moody’s reckons Qantas’ $1.9 billion capital raising, 6,000 job cuts and other measures announced late last week will be “credit positive because Qantas will use the proceeds to strengthen its balance sheet and improve its financial flexibility, in line with its financial framework.”

In an analysis of the move, Moody’s pointed out Qantas’ strong financial position.

Qantas had $A2.5 billion of cash, undrawn facilities of $AD1 billion, and an unencumbered fleet valued at $A2.7billion as of May 5. Total liquidity will increase to $A4.6 billion, excluding unencumbered aircraft, following the completion of the equity raise.

Pro forma net debt was $A4.7 billion as of May 31, and Qantas has no major debt maturities until June 2021 (these figures exclude the $US500 million share purchase plan proceeds, which will only be received in July, according to the Moody’s analysis).

“Qantas has prioritized balance-sheet strength and liquidity for a number of years, despite record earnings, and the coronavirus outbreak has shown the benefit of this.

“The company has taken a number of actions to reduce cash burn as revenue has fallen amid the coronavirus disruption to air travel, including standing down employees, deferring capital spending and revoking the declared first-half 2020 dividend.

“It also utilized its unencumbered fleet to raise AUD1.75 billion in debt to boost liquidity. Qantas’ management has a strong track record in transforming the business. Therefore, it is positive that at the board’s request, Alan Joyce agreed to remain group CEO at least until the end of fiscal 2023, ending 30 June 2023,“ Moody’s said.

The ratings group pointed out that while Qantas had forecast its average domestic capacity to recover to 70% in fiscal 2021 and 100% in fiscal 2022 and expects international capacity to be around 50% in fiscal 2022, “the reality is that it is difficult to forecast capacity with accuracy in the current environment.”

“It is also very hard to forecast company results in the current environment, and financial policy and governance come to the fore in our credit analysis as a result.

“We view Qantas’ adherence to its financial framework as highly supportive of its rating because it ensures that its capital structure remains robust and its liquidity strong,“ Moody’s said in its report.

Qantas shares fell nearly 5% to $3.62 on Monday as the rising in new COVID-19 cases in Victoria and Australia undermined confidence in the idea of a quick re-opening for the economy and air travel.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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