It's official -- BA are junk!
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It's official -- BA are junk!
I hope this is the right forum (well it's news and it may affect pilots' jobs) -- but this has been running on the wires.
S&P cuts British Airways <BAY.L> to "junk" grade
LONDON, July 1 (Reuters) - Credit rating agency Standard & Poor's cut the long-term corporate credit rating of British Airways Plc to a "junk" grade BB+ from BBB- on Tuesday, drawing fire from Europe's biggest airline.
The downgrades conclude a review of the impact on BA's creditworthiness of the war in Iraq and of a slump in Asia ticket sales due to the deadly SARS virus.
BA shares sagged 5.3 percent to 143-1/2 pence.
In a statement, S&P said it had cut BA's senior unsecured debt rating to BB- from BB+. It assigned a stable outlook.
"As a result of the more challenging industry environment, S&P believes that British Airways' financial profile and credit measures are no longer, nor are likely to be, over the next several years, appropriate for an investment-grade rating," said S&P analyst Bob Ukiah in the agency's statement.
British Airways criticised the move.
"I am astonished that Standard & Poor's has chosen to downgrade us at this time," British Airways' Chief Financial Officer John Rishton said in a statement.
He added that since the last S&P review British Airways had achieved all of the financial and restructuring targets aimed at making the airline leaner and more efficient. Only last week credit agency Moody's confirmed its rating for BA, he said.
"The war is over, SARS is fading, the U.S. economy is showing signs of recovery and traffic volumes are improving from the worst levels," Rishton said.
S&P also downgraded its ratings on the New York City Industrial Development Agency's senior secured special facility revenue bonds, series 1998 and 2002 -- a British Airways project -- to BB- from BBB-. All ratings were removed from CreditWatch, where they were placed on March 18, S&P said.
S&P said the downgrade of the airport revenue bonds followed a recent review of protections available to bondholders.
The review concluded that recoveries in the event of a BA insolvency would be substantially similar to those of unsecured creditors, as bondholders are not secured by the underlying lease between the airline and The Port Authority of New York and New Jersey.
S&P's Ukiah said BA should be able to improve its financial position, despite the challenges and uncertain outlook for the airline industry.
"This should allow it to achieve credit ratios appropriate for the revised ratings over the next year or two," he added.
BA's chief executive Rod Eddington said on June 12 that he expected to slash net debt at the airline by two billion pounds over the next three years, from 5.15 billion pounds in May.
The airline has cut more than 10,000 jobs and reduced capacity in the face of a string of problems, including the Iraq war, sluggish economies, the SARS virus, corporate travel cutbacks and competition from no-frills operators.
Credit rating agency Moody's Investors Service said on March 21 that it may also cut BA's debt ratings as a result of the outbreak of war with Iraq and weak business trends.
Moody's rates the firm's debt a "junk" grade Ba2.
S&P cuts British Airways <BAY.L> to "junk" grade
LONDON, July 1 (Reuters) - Credit rating agency Standard & Poor's cut the long-term corporate credit rating of British Airways Plc to a "junk" grade BB+ from BBB- on Tuesday, drawing fire from Europe's biggest airline.
The downgrades conclude a review of the impact on BA's creditworthiness of the war in Iraq and of a slump in Asia ticket sales due to the deadly SARS virus.
BA shares sagged 5.3 percent to 143-1/2 pence.
In a statement, S&P said it had cut BA's senior unsecured debt rating to BB- from BB+. It assigned a stable outlook.
"As a result of the more challenging industry environment, S&P believes that British Airways' financial profile and credit measures are no longer, nor are likely to be, over the next several years, appropriate for an investment-grade rating," said S&P analyst Bob Ukiah in the agency's statement.
British Airways criticised the move.
"I am astonished that Standard & Poor's has chosen to downgrade us at this time," British Airways' Chief Financial Officer John Rishton said in a statement.
He added that since the last S&P review British Airways had achieved all of the financial and restructuring targets aimed at making the airline leaner and more efficient. Only last week credit agency Moody's confirmed its rating for BA, he said.
"The war is over, SARS is fading, the U.S. economy is showing signs of recovery and traffic volumes are improving from the worst levels," Rishton said.
S&P also downgraded its ratings on the New York City Industrial Development Agency's senior secured special facility revenue bonds, series 1998 and 2002 -- a British Airways project -- to BB- from BBB-. All ratings were removed from CreditWatch, where they were placed on March 18, S&P said.
S&P said the downgrade of the airport revenue bonds followed a recent review of protections available to bondholders.
The review concluded that recoveries in the event of a BA insolvency would be substantially similar to those of unsecured creditors, as bondholders are not secured by the underlying lease between the airline and The Port Authority of New York and New Jersey.
S&P's Ukiah said BA should be able to improve its financial position, despite the challenges and uncertain outlook for the airline industry.
"This should allow it to achieve credit ratios appropriate for the revised ratings over the next year or two," he added.
BA's chief executive Rod Eddington said on June 12 that he expected to slash net debt at the airline by two billion pounds over the next three years, from 5.15 billion pounds in May.
The airline has cut more than 10,000 jobs and reduced capacity in the face of a string of problems, including the Iraq war, sluggish economies, the SARS virus, corporate travel cutbacks and competition from no-frills operators.
Credit rating agency Moody's Investors Service said on March 21 that it may also cut BA's debt ratings as a result of the outbreak of war with Iraq and weak business trends.
Moody's rates the firm's debt a "junk" grade Ba2.
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In investment and banking circles the word "junk" has a very specific meaning, and describes an investment or security that is anything below so-called 'investment grade'. It's just a threshold, passing a certain notch on a dial with many notches. In practical and operational terms for the company it is of minor or no significance, though it may lead to a small increase in financing costs for the airline. I would judge that the airline is pretty stable at the moment relative to its peers, something else mentioned in the report, and that it is slowly moving forward in a positive direction, on the up, facing down the competition quite successfully in a post-war and post-SARS environment. There is still some work to do to reduce overhead costs, but the airline knows this as much as anyone. But to infer that the airline as a whole is 'junk' is as unfair as it is misleading.
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I have travelled on a lot of airlines much worse than BA - their standard might not be the best but they are consistent and, usually, reliable. I also would rather be on a BA aircraft that went wrong than anybody else's except mine!
If they are 'junk' what does that make the others?
If pax numbers recover just watch their share price.
If they are 'junk' what does that make the others?
If pax numbers recover just watch their share price.
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Typical Credit Agency behaviour. Three words spring to mind Horse, Door and Bolted. The airline makes a profit and repays £1.5 bn of debt having survived foot and mouth, AF Concorde crash, Sept 11th, SARS, and LC competition.
What does S&P make of it all 'Er...We think all these factors may have had a negative impact on BA's business'.
NO SH!T SHERLOCK !!!
What does S&P make of it all 'Er...We think all these factors may have had a negative impact on BA's business'.
NO SH!T SHERLOCK !!!
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GCC,
I think that most investors would agree that any company that doesn't cover its cost of capital over the cycle is 'junk'
That doesn't, of course refer the the services provided by said company.
Gusty
I think that most investors would agree that any company that doesn't cover its cost of capital over the cycle is 'junk'
That doesn't, of course refer the the services provided by said company.
Gusty
Last edited by GustyOrange; 5th Jul 2003 at 19:04.
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GustyOrange, I suppose they might well. My point was that I wanted to explain the use of the word "junk" in this specific financial/investment context. It's just any investment security or bond that's outside the definition of "investment-grade", which does not mean the underlying company, if designated "junk", is going down the toilet. It's an unfortunate word and because it is predictably misunderstood, junk bonds or junk debt are often now called sub-investment grade !
I am not saying it's a good or even a desirable development - though there are investment funds who, having a mandate to invest in instruments which offer a higher return for a higher risk, actually seek out "junk" instruments. Anyone can call anything "junk", including British Airways management or service, and maybe they are in the normal sense of the word (though I happen to believe personally they are on the up, slowly). I just wanted to clarify the more arcane use of the word in City circles.
I am not saying it's a good or even a desirable development - though there are investment funds who, having a mandate to invest in instruments which offer a higher return for a higher risk, actually seek out "junk" instruments. Anyone can call anything "junk", including British Airways management or service, and maybe they are in the normal sense of the word (though I happen to believe personally they are on the up, slowly). I just wanted to clarify the more arcane use of the word in City circles.
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BA shares 'junk'
from the BBC:
http://news.bbc.co.uk/1/hi/business/3035746.stm
British Airways has criticised the decision by the Standard & Poor's (S&P) rating agency to cut the airline's credit rating to 'junk' status.
S&P announced that it would be cutting BA's credit rating following an assessment of the impact of the war in Iraq and the Sars virus.
"As a result of the more challenging industry environment, S&P believes that British Airways' financial profile and credit measures are no longer, nor are likely to be, over the next several years, appropriate for an investment-grade rating," said S&P analyst Bob Ukiah.
But BA said it was "astonished" at the decision, saying that its cost-cutting programme was proceeding as planned and that business prospects were looking up.
Shares in BA were down nearly 5% in mid-afternoon trade at 144p.
Anger
S&P said it was downgrading BA's long-term corporate credit rating from 'BBB-' to 'BB+' and its unsecured senior debt from 'BB+' to 'BB-'.
I am astonished that Standard & Poor's has chosen to downgrade us at this time
John Rishton, BA
It said the ratings reflected BA's high debts, additional future pension contributions, ongoing competition in key markets and an above-average exposure to the fiercely competitive North Atlantic market.
It said these weaknesses were only partly offset by BA's cost-cutting progress and its strong position at Heathrow.
But BA has reacted angrily to the move.
"I am astonished that Standard & Poor's has chosen to downgrade us at this time," said chief financial officer John Rishton.
"Since the last Standard & Poor's review we have exceeded all of our financial and restructuring targets under our Future Size and Shape programme and only last week Moody's confirmed its rating for the company and its debt.
"The war is over, Sars is fading, the US economy is showing signs of recovery and traffic volumes are improving from the worst levels."
Cost cuts
BA has been restructuring its business for some time now in a reaction to the post-September 11 downturn in air travel and fierce competition from budget carriers.
Since August 2001 it has shed more than 10,000 posts and says it is on track to achieve its target of 13,000.
It added that its debt is down £1.4bn from its peak and the restructuring programme has made annualised cost savings of £570m against a target of £450m.
The impact of its cost-cutting programme was shown when it reported a profit of £135m on the year to 31 March, compared with a £200m loss the previous year.
However, the impact of the build-up to the war in Iraq contributed to a £200m loss during the January to March period.
http://news.bbc.co.uk/1/hi/business/3035746.stm
British Airways has criticised the decision by the Standard & Poor's (S&P) rating agency to cut the airline's credit rating to 'junk' status.
S&P announced that it would be cutting BA's credit rating following an assessment of the impact of the war in Iraq and the Sars virus.
"As a result of the more challenging industry environment, S&P believes that British Airways' financial profile and credit measures are no longer, nor are likely to be, over the next several years, appropriate for an investment-grade rating," said S&P analyst Bob Ukiah.
But BA said it was "astonished" at the decision, saying that its cost-cutting programme was proceeding as planned and that business prospects were looking up.
Shares in BA were down nearly 5% in mid-afternoon trade at 144p.
Anger
S&P said it was downgrading BA's long-term corporate credit rating from 'BBB-' to 'BB+' and its unsecured senior debt from 'BB+' to 'BB-'.
I am astonished that Standard & Poor's has chosen to downgrade us at this time
John Rishton, BA
It said the ratings reflected BA's high debts, additional future pension contributions, ongoing competition in key markets and an above-average exposure to the fiercely competitive North Atlantic market.
It said these weaknesses were only partly offset by BA's cost-cutting progress and its strong position at Heathrow.
But BA has reacted angrily to the move.
"I am astonished that Standard & Poor's has chosen to downgrade us at this time," said chief financial officer John Rishton.
"Since the last Standard & Poor's review we have exceeded all of our financial and restructuring targets under our Future Size and Shape programme and only last week Moody's confirmed its rating for the company and its debt.
"The war is over, Sars is fading, the US economy is showing signs of recovery and traffic volumes are improving from the worst levels."
Cost cuts
BA has been restructuring its business for some time now in a reaction to the post-September 11 downturn in air travel and fierce competition from budget carriers.
Since August 2001 it has shed more than 10,000 posts and says it is on track to achieve its target of 13,000.
It added that its debt is down £1.4bn from its peak and the restructuring programme has made annualised cost savings of £570m against a target of £450m.
The impact of its cost-cutting programme was shown when it reported a profit of £135m on the year to 31 March, compared with a £200m loss the previous year.
However, the impact of the build-up to the war in Iraq contributed to a £200m loss during the January to March period.
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GCC - I'm in a similar trade as Gusty, who obviously knows his stuff. Heed his words.
I was just being mischievous with headline.
I suspect also that Gusty could be right in that this is a quite attractive 'fallen angel'.
A lot of bondholders, pension funds will be forced to sell BA bonds/shares now they're sub-investment grade. Many funds etc are only allowed to hold investment grade paper.
If you believe the BA management -- buy.
I was just being mischievous with headline.
I suspect also that Gusty could be right in that this is a quite attractive 'fallen angel'.
A lot of bondholders, pension funds will be forced to sell BA bonds/shares now they're sub-investment grade. Many funds etc are only allowed to hold investment grade paper.
If you believe the BA management -- buy.
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i just but cheap shares and ba is one iv watched for ages its gone down twice to 80p in the last 12 months and bounced right back up as bad as the news gets the price goes higher theyll get acepted inthe ft 100 again and hopefully the price will go down again so i can buy more
