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Qantas interest bill flying high

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Debt-laden Qantas Airways’ credit rating has been downgraded to “junk” and pressure on the airline and the federal government to fix its woes is rising.

The national carrier faces a $100 million jump in interest payments on its $829.39 million in affected debt, after ratings agency Moody’s downgraded its credit rating, the second downgrade in a month.

A market strategist at IG, Evan Lucas, said the airline was “in a complete freeze”.

“(Qantas is) worrying about paying interest rather than spending where it should be going – a new fleet, upgrading facilities,” he told AAP .

Federal Liberal MP Dan Tehan has promoted a lifting of the foreign-ownership caps to help Qantas, but Labor rejected that, calling for public investment.

Either change would have to be passed by parliament.

Moody’s attributed its move to a surprisingly sharp fall in the airline’s core domestic business due to rival airline Virgin Australia’s aggressive attack on Qantas’ 65 per cent market share.

Virgin has been chasing more lucrative business travellers and this week reported greater returns from airfares for the first five months of the financial year.

Qantas’ returns continue to plummet.

Qantas chief financial officer Gareth Evans on Thursday said the company was talking to the Australian government about resolving what it says is an uneven playing field that has caused the rapid deterioration in its earnings.

The airline opposes Virgin’s deal in which three foreign airlines will inject $350 million in equity.

Ratings agency Standard & Poor’s downgraded Qantas’ rating to junk status in December after the airline’s shock announcement it expected to axe 1000 jobs and would likely post a $300 million first-half loss.

A junk rating is a signal to many investors not to buy the stock, while also lifting operational costs and forcing delays in booking sales to a balance sheet.

That will restrict Qantas’ ability to invest and compete with Virgin.

Qantas will next month announce details of its $2 billion cost-cutting program and capital expenditure and structural review.

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