Better news for Qantas (QAN) with ratings group Moody’s lifting its outlook rating to positive from stable as the airline completes its cost cutting program and moves to profit.
Moody’s’ said the ratings upgrade reflected Qantas’s reduced debt and the progress it had made on its "transformation program". Moody’s vice president and senior analyst Matthew Moore said it also reflected the positive effect of a weaker Australian dollar and lower fuel prices on the airline’s operations.
“The company is on track to achieve its targeted $1 billion of net debt reduction and we are expecting a substantial improvement in EBITDA (earnings before interest, taxation, depreciation and amortisation) for FY15,” Mr Moore said in the statement.
"Our expectation for improved EBITDA generation is a result of the company’s solid progress under its large transformation program and the ongoing improvement in competitive and operating conditions, particularly in the domestic market.
“The ratings could be upgraded if the company is able to continue to execute on its transformation program and if current operating conditions continue to improve in both the domestic and international markets.”
“The change in outlook from stable to positive reflects the reduction in adjusted debt due to changes in Moody’s approach for capitalising operating leases. “ he updated lease methodology will lead to a significant reduction in Qantas’ lease adjusted debt, which Moody’s expects will decline by around 20% as a result of the change.
“This combined with recent improvements in Qantas’ operating profile will lead to strong credit metrics for its current rating,” Moody’s said.
"The impact of lower fuel prices and a weaker Australian dollar will also provide solid support to improved earnings over the next twelve months," Moore added.
Qantas posted a $203 million net profit for the half year to February, a turnaround from a $235 million loss at the same time last year. It is on track to earn close to $1 billion for the full year. It is nearing the end of a program to cut 5,000 jobs.
Qantas shares ended at $3.23, up 0.3%.
QAN 1Y – Qantas outperforming the market as credit outlook raised
