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Air NZ credit rating boosted on back of govt support

Friday 1st October 2010

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Air New Zealand, the national carrier, has been upgraded to an investment grade Baa3 credit rating by Moody’s Investors Service due to its implied government support.

Moody’s said the airline’s majority ownership by the government means its rating incorporated a high likelihood of government support, and the upgrade reflected its good performance through the recession.

“The one notch upgrade to Air New Zealand’s issuer rating reflects its relative good performance and resilience through the down turn, and our expectation of continued improved performance,” said senior analyst Ian Lewis in a statement.

“We are cognisant that the airline industry is one of the most volatile sectors in our portfolio and challenges for the company will continue.”

Earlier this month, a proposed alliance between Air NZ and rival Virgin Blue Holdings was knocked back by Australia’s anti-trust regulator. The airlines put forward the bid in response to Qantas Airways’ two-airline strategy where its low-fare Jetstar unit operates domestically in New Zealand and links to longer haul flights on its parent.

Moody’s said Air NZ’s base credit rating could come under pressure if competition was to substantially increase, or if its performance deteriorated. The airline also needs to keep its cash balance above $500 million, and continue to pay down its debt to keep its rating.

Air NZ’s Baa3 rating could be upgraded it government support was formalised, while Moody’s expects the airline to gradually improve its performance over the coming year.

The shares rose 1.6% to $1.29 in trading today, and have gained 5.8% this year.

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