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Fri 2 Nov 2012 10:13 AM

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Dubai-linked Qantas to focus on debt deal

Australian airline inks 10-year alliance with Emirates to boost overseas operations

Dubai-linked Qantas to focus on debt deal
(Getty Images)

Qantas Airways Ltd, Australia's struggling flagship airline, said on Friday it plans to focus on paying down debt after curbing capital spending as part of a turnaround plan.

Chief executive Alan Joyce reiterated that the carrier's expenditure requirements, which have been cut sharply in recent months, would be A$1.9bn in 2012/13 and said they would not exceed that level in the following year.

Qantas last month agreed to a 10-year alliance with Dubai's Emirates to shore up the international business, ending a 17-year partnership with British Airways.

"As a result, we are turning our attention to paying down debt, mindful of the volatile economic and financial environment," Joyce told shareholders at the company's annual general meeting in Canberra.

Qantas's net debt at June 2012 stood at A$3.15bn, according to Thomson Reuters data.

"It (debt level) is high for the nature of the industry. Given the earnings currently are very low, it's not a silly move to be looking to reduce debt," said Will Seddon, a portfolio manager at White Funds Management, which owns Qantas shares.

"It's pretty much in line with some of their recent moves," he added.

Qantas, which is in the midst of a five-year turnaround plan for its loss-making international division, has been stripping out costs after a year troubled by a record fuel bill, rising competition and union opposition to its spending cuts.

In May, it delayed delivery of two new Airbus 380s, taking capex cuts to A$900m, and in August, it cancelled orders for 35 Boeing Co Dreamliner jets after posting its first annual net loss in 17 years.

"We will invest only where we can be confident of sustainable returns, and we retain the flexibility to adjust capital expenditure as operating conditions demand," Joyce said.

Australia's competition watchdog is currently evaluating the deal, which the Australian government has said would provide benefits for consumers and aid competition in the aviation market.

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