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Fri 21 Dec 2012 11:05 AM

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S&P says Emirates deal no 'panacea' for Qantas

Rating agency leaves ratings on Australian carrier unchanged despite preliminary approval

S&P says Emirates deal no 'panacea' for Qantas
(AFP/Getty Images)

Standard & Poor's has said it will not upgrade ratings on Australian carrier Qantas on the back of news that its planned alliance with Dubai's Emirates Airline has received preliminary approval from regulators.

The rating agency said that its 'BBB-/Stable/A-3' issuer credit rating on Qantas was unaffected by the the Australian Competition and Consumer Commission's draft determination authorising the two airlines to coordinate their operations for an initial period of five years.

S&P said that while it viewed the Qantas-Emirates partnership as "positive from a credit perspective", it would not act as a "panacea" to the carrier's problems.

"The wide-ranging agreement substantially addresses the declining market share and profitability of Qantas' European network and allows Qantas to more appropriately service its Asian network," S&P said.

"Nevertheless, we do not view the partnership as a panacea. The challenges facing Qantas are largely structural and the partnership does not diminish Qantas' need to pursue an independent long-term strategy to manage its cost base," it added.

While the final decision is not expected until March, the Australian Competition & Consumer Commission has indicated its overall satisfaction that the public benefit from the airlines' partnership outweighs any public detriment.

S&P also said its rating on Qantas did not depend on final regulatory approval of the partnership.

"Should the draft determination be overturned, we view Qantas as having sufficient flexibility within its current rating to pursue alternate strategies," it said.

Qantas announced the Emirates deal in September, ending its 17-year alliance with British Airways, owned by IAG, which some analysts have suggested could seek a new partner such as Qatar Airways.

The alliance is deeper than a straightforward code-share arrangement - where airlines share some flights - but stops short of a global revenue-sharing deal or equity injection from either side.

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