Photographer: Ian Waldie/Bloomberg

Qantas Regains Investment Grade as Balance Sheet Improves

Updated on
  • Turnaround plan produced best results in 7 years in August
  • Agency had cut Australian national carrier to junk in 2013

Qantas Airways Ltd. regained its investment-grade credit rating for the first time in two years, following a profit turnaround buoyed by lower fuel prices and job cuts.

Standard & Poor’s upgraded the Australian airline’s score one notch to BBB-, citing a strengthened balance sheet. The ratings company said Qantas’s finances were “more formal, forward-looking, and preemptive.”

Cost reductions, boosted by a tumbling oil price, helped deliver in August the airline’s strongest full-year earnings since Managing Director Alan Joyce took over in 2008. Earlier this month Qantas handed back A$505 million to shareholders and then said Tuesday it’s poised to consider additional capital returns.

“You’ve got to give senior management some credit, but a lot of it is down to factors completely beyond Joyce’s control,” said Tony Webber, associate professor at the University of Sydney Business School and a former chief economist at Qantas. “You never know what the oil price is going to do and you never know what the competition is going to do. It’s an unstable industry.”

In the 12 months ended in June, Qantas reduced its net debt by more than A$1 billion, to A$3.74 billion, and generated A$1.1 billion in free cash flow. The airline ended the period with $2.9 billion of cash on its balance sheet.

Qantas shares climbed 5.9 percent to A$3.76, the biggest jump since July, at the close in Sydney. The shares, which fetched as little as A$1.01 in December 2013, have risen 47 percent so far this year. That’s compared to a 5.4 percent decline in the benchmark S&P/ASX 200 Index.

Qantas’s Australian dollar bonds surged. The airline’s A$400 million of 7.5 percent notes due in June 2021 rose A$1.24 cents to $109.93 per $100 face value.

S&P had downgraded Australia’s national carrier to junk status in December 2013.