* S&P cuts credit rating after shock H1 loss warning
* Moody's reviewing rating on carrier, downgrade possible
* PM hints at flexibility on Qantas foreign ownership
By Jane Wardell and Ian Chua
SYDNEY, Dec 6 Australia's prime minister Tony
Abbott spurned a plea for help from Qantas Airways Ltd
on Friday, saying subsidising the embattled airline would be "a
bottomless pit" as its credit rating was relegated to junk
The downgrade by Standard & Poor's followed a shock loss
warning from the carrier on Thursday that sent its shares
plummeting to their biggest one-day loss in almost 18 months.
Moody's also said it may cut its rating on Qantas below
Abbott's comments suggested Chief Executive Alan Joyce had
cut little ice with calls to government ministers on Thursday
seeking urgent action to assist Qantas, claiming its aggressive
rival Virgin Australia Holdings has an unfair
"The point I make is that if we subsidise Qantas, why not
subsidise everyone?" Abbott said in an interview on Melbourne
radio station 3AW. "If we subsidise everyone, that's just a
bottomless pit into which we will descend."
The Australian flag carrier had been one just four airlines
with investment grade ratings from Moody's or S&P. The remaining
three are Deutsche Lufthansa AG, Air New Zealand
and Southwest Airlines Co.
S&P's move to cut its main rating on the carrier to BB+, one
rank below investment grade, could make it harder for
debt-loaded Qantas to borrow funds. The airline could also lose
some shareholders whose rules on investment prevent them from
retaining stock in companies rated at junk level.
Qantas warned on Thursday it expects a pre-tax first-half
loss of between A$250 million ($226 million) and A$300 million
in the six months to Dec. 31. S&P said that warning caused the
carrier's financial risk profile to deteriorate, adding it may
cut Qantas's rating again.
The airline has long complained that Virgin Australia's
access to foreign funding, via its major shareholders Gulf
carrier Etihad, Singapore Airlines and Air New
Zealand, has created an unfair playing field.
Qantas CEO Joyce had hinted that subsidies would help, while
analysts had speculated the government might consider a share
purchase. Though formerly state-owned, the government owns no
shares in the carrier now.
"In the end businesses have to operate profitably, and in
the end they have to operate profitably because of their own
decisions and from their own resources," Abbott said. "They
can't expect government to do anything other than create the
best possible market conditions for them to operate."
Abbott did suggest amending the 1992 Qantas Sale Act, which
limits foreign ownership of the airline to 49 percent, could be
"The preference always would be to have the company in
majority Australian hands," Abbott said.
"But if it's a choice between a greater foreign stake in
Qantas and taxpayer subsidy, I ask the people of Australia,
'What do you prefer?'" he said. "Do you prefer to be paying
through your taxes for Qantas or do you prefer to have it
slightly more in foreign hands than it is?"
As well as the prospect of having to pay higher borrowing
rates because of the downgrade, Qantas may see an impact on its
A$2.8 billion cash balance. The rating cut could slow the
transfer of revenue from credit card companies for ticket sales
because additional processing is now required.
Qantas shares closed 3.7 percent lower at A$1.03, just above
a 16-month low of A$1.00 touched on Thursday.
The spread of Qantas' credit default swaps (CDS), which
operate like an insurance contract that protects against debt
default, spiked by 60 basis points to 275 basis points on
Friday, according to UBS. The corporate CDS market is usually
very illiquid, and Qantas especially so.
Qantas Chief Financial Officer, Gareth Evans, said in a
statement after the S&P move that the downgrade was not
unexpected after Thursday's loss warning, and highlighted the
"uneven playing field in the Australian aviation market".
Evans said an accelerated cost-cutting program, to save a
total of A$2 billion over three years, would help the company
leverage its cash balance and asset base.
Analysts speculate asset sales may be part of a structural
review, also announced on Thursday, along with 1,000 job cuts.
"Notwithstanding Qantas' strong financial flexibility, we
expect the cyclical and structural headwinds facing the airline
to persist, which could hinder a timely recovery of its
financial risk profile and credit metrics," S&P said in a