Qantas has been downgraded to junk status just a day after the airline announced the axing of 1000 jobs and and warning it could fall to a A$300 million (NZ$330m) loss in the first half of this year.
The Australian Stock Exchange-listed airline had entered a trading halt ahead of the announcement that it lost its investment grade credit rating from Standard & Poor's, which downgraded the company to a "BB+/B" rating.
Qantas had warned the re-rating was "likely to be materially price sensitive''.
On Thursday, Qantas shares plunged 11.2 per cent, in their biggest one day loss in almost 18 months, to A$1.07 after the airline announced it would lose up to A$300m in the first half of the financial year.
S&P had rated Qantas at BBB-minus - the lowest investment grade credit rating - but had not placed it on negative watch for a potential downgrade.
However, the downgrade raises the prospect that Qantas will be downgraded to "junk" without the interim step of 'negative watch'.
That means it could face the prospect of losing hundreds of millions of its A$2.8 billion cash balance, as the transfer of revenue from credit card companies for transactions like ticket sales is delayed because of Qantas' lower rating.
It could also face a A$100m-plus rise in its annual interest bill, higher leasing and hedging fees and the loss of some investors unable to invest in companies rated "junk".
Moody's on Thursday evening placed Qantas on negative watch but maintained its Baa3 rating - the lowest investment grade - for the time being.
Qantas chief executive Alan Joyce on Thursday would not reaffirm the airline would keep its investment grade credit rating, saying that was up to the ratings agencies.
Qantas has been placing increasing pressure on Tony Abbott's government to guarantee the airline's debt, but so far the Coalition has held back.
''Moody's has stated government support would be credit positive for Qantas. Government commentary reported in the media appears to suggest taking a 5-10 per cent ownership stake in Qantas is currently the preferred option over an explicit government guarantee or letters of comfort,'' said UBS analyst Simon Mitchell.
It has been a rough six years for Qantas investors, who have seen the company's share price fall more than 80 per cent from A$6.06 in 2007.
- Sydney Morning Herald