BA creditworthiness downgraded to 'junk'

British Airways saw its creditworthiness cut to “junk” status today, sending the airline’s shares tumbling.

The downgrade follows a review of BA by ratings agency Standard & Poor’s following the war in Iraq and weaker demand for air travel on Asian routes due to the flu-like Sars outbreak.

The move effectively means BA must pay more interest on the money it borrows. Shares fell 3.75p to 147.75p.

S&P’s credit analyst Bob Ukiah said: “As a result of the more challenging industry environment, Standard & Poor’s 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.”

In a statement, S&P said it had lowered BA’s long-term corporate credit rating to BB+ from BBB-, assigning a stable outlook.

The agency said it had also cut BA’s senior unsecured debt rating to BB- from BB+.

Responding to the news, BA’s chief financial officer John Rishton said: “I am astonished that Standard & Poor’s has chosen to downgrade us at this time.

“The war is over, SARS is fading, the US economy is showing signs of recovery and traffic volumes are improving from the worst levels.”

BA has cut more than 10,000 jobs since August 2001 and has reduced capacity in an effort to mitigate the impact of falling demand due to war, terrorism fears and SARS.

But S&P’s said BA’s proven ability to reduce costs and its position as the main player at London’s Heathrow airport only partially offset the company’s high financial leverage, additional future pension contributions, sustained competition in key markets and an above-average exposure to North Atlantic traffic.