Qantas faces funding crunch to renew fleet

The Australian flag carrier said it rejects the conclusions report by S&P Global Ratings

After delaying spending on its fleet for too long during a turnaround program, Qantas Airways Ltd faces a possible funding squeeze when it’s time to buy new planes, according to S&P Global Ratings.

The Australian flag carrier needs to increase investment in its ageing fleet of 309 planes before the sum required is too large to handle, S&P said in a report released yesterday. Shareholder returns may have to be reduced to pay for fleet renewal, the ratings company said.

Qantas doesn’t plan to increase capital expenditure this year or the next, creating a “sizeable funding task” from 2020 onward, S&P said. The airline may be restricted by its own target for net debt as well as an Australian law that limits foreign ownership of the carrier’s shares. The carrier has said it will spend a combined A$3 billion (Dh8.7 billion, $2.4 billion) in the 12 months ending June 2018 and the following year.

Qantas “rejects the conclusions of this report, because it ignores the fundamentals of our business and our fleet strategy,” the airline said in a statement. The average age of a Qantas plane is just shy of 10 years, almost double the figure at Emirates, S&P said.

“It’s a big task that needs to be addressed sooner rather than later,” Graeme Ferguson, a Melbourne-based credit analyst at S&P, said in an interview.