S&P cuts Qantas to BBB-; one notch above junk

SYDNEY, Sept 7 (Reuters) - Ratings agency Standard & Poor's cut Qantas Airways Ltd's rating by a notch to BBB- to reflect the weakness in its ailing international operations, putting the airline just one notch above junk status.

S&P said in a statement that efforts by Qantas to turn around its international arm would take some time and it would be difficult for the Australian airline to compete against Asian carriers that boast lower costs.

However, the agency also highlighted Qantas' "strong and defendable" position in its domestic market and the group's strong liquidity.

Qantas on Thursday agreed a 10-year alliance with Dubai's Emirates, marking a key step in its efforts to shore up its loss-making international business..

Its international operations pushed it to report its first loss in 17 years and forced it to cancel orders for 35 Boeing dreamliners.

Despite the downgrade, Qantas remains one of only two investment grade airlines in the world, along with Southwest Airlines. In January, Moody's cut Qantas to Baa3, which is in line with S&P's current rating for the carrier.

Ahead of the S&P move, Qantas rose 5 percent to a three-month high on Friday. It is valued by the market at $2.85 billion.