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Thu 9 Jan 2014 02:07 PM

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Dubai-linked Qantas credit slashed to 'junk' by Moody’s

Tie-up with Dubai’s Emirates has failed to boost prospects at Australia’s national carrier

Dubai-linked Qantas credit slashed to 'junk' by Moody’s

Qantas Airways has seen its credit rating downgraded to sub investment grade by a second ratings agency in less than a month on the back of dwindling profits in its domestic operations.

The Australian airline, which last year signed a milestone tie-up with Dubai’s Emirates Airline, saw its credit rating slashed to from Baa3 to Baa2, or ‘junk’, by Moody’s Investor Services. The credit rating also attached an outlook of “negative” to the carrier.

"The downgrade to Ba2 reflects a worse than expected impact on Qantas' credit profile of a marked sharp deterioration in the company's core domestic business, which has been a key supporting factor of its previous investment grade rating", said Ian Lewis, vice president at Moody's.

In December Qantas announced its intention to trim its workforce by 1,000 staff and issued a profit amid intensifying competition.  Its domestic unit, the biggest part of its business, saw profits fall 21 percent in Qantas’s last financial year.

In the same month fellow ratings agency Standard & Poor’s downgraded Qantas to sub investment grade.

Qantas last year signed a major alliance with Emirates which saw the former move its international hub and European stop-over point to Dubai from Singapore.

The airline has struggled however amid increased domestic competition from Virgin Australia, which has raised significant amounts of capital by selling stakes to foreign airlines including the UAE’s Etihad Airways (19.9 percent) and Singapore Airlines (19.9 percent).

Regulations prevent Qantas, Australia’s national carrier, from selling more than 49 percent of its equity to foreign investors.

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