British Airways' finances received a vote of confidence today after the company's credit rating was upgraded to its highest level for almost four years.
Credit agency Standard & Poor's has upped the company's debt rating from "junk" status to "investment grade" after BA tackled its £2.1bn (€3.bn) pension deficit and the outlook for the airline industry improved.
The change will allow BA to borrow more cheaply and is expected to save the group several million pounds in interest charges. Credit ratings reflect a company's ability to repay debt. The lower the rating, the higher interest rates the company will be charged.
Standard & Poor's decision comes after the company's debt was downgraded in July 2003 after the 9/11 terrorist attacks, the war in Iraq, and fears linked to the Sars virus shattered confidence in the airline industry.
At the time, BA reacted angrily to the move, saying it was "astonished" at the downgrade.
Today, Keith Williams, British Airways chief financial officer, welcomed the move back to investment grade: "We have worked hard over the last four years strengthening the foundations of our business.
"Regaining investment grade status will enable us to invest in our future growth with confidence."
Standard & Poor's said its ruling reflected BA's attempts to improve its finances in recent years.
Leigh Bailey, analyst at Standard & Poor's, said: "The upgrade follows BA's good progress in strengthening its financial profile and our expectations of improved operational performance."
He added that the company was set to benefit from its switch to Terminal Five at Heathrow in 2008 and also said the "Open Skies" deal between the European Union and the US removing restrictions on transatlantic routes would not sufficiently hit future profits to damage BA's financial profile.
"We believe that a satisfactory revenue environment - bolstered by demand for premium long-haul services - and tight cost control should enable the group to improve operating performance and maintain credit ratios in line with our expectations," added Mr Bailey.
Analysts said the decision would help BA, which has cut its debts from £6.6bn (9.79m) to £990m (1.47bn) in the past four years, update its existing fleet of aircraft.
Gert Zonneveld, analyst at Panmure Gordon, said: "The company's net debt is now at its lowest level for 10 years. BA has an ageing fleet which it is looking to replace and this decision will help it renegotiate investment to plan for future spending".
BA said in its annual results last month that interest payments for the year to March 31 had fallen by £46m (€68.28m) to £168m (€249.37m) due to lower debt levels.
The carrier agreed a deal earlier this year with unions over changes to its pension scheme in an attempt to cut its £2.1bn (€3.1bn) pension deficit.
The agreement will see BA cut its pension shortfall to £1.1bn (€1.6bn) through a one-off payment of £800m (€1.19bn) and changes to employee benefits saving a further £400m (€593.66m) in return for changes to working practices.
The decision to upgrade BA's debt comes after a turbulent year for the company, which reported a 0.8% drop in annual pre-tax profit to £611m (€906.88m) last month after it was hit by the impact of baggage restrictions, the threat of strike action by cabin crew and severe disruption to services in December due to fog.
It has also set aside £350m (€519.49m) to deal with potential fines linked to breaches of competition law relating to accusations of price-fixing fuel surcharges.
The company, which sold loss-making regional airline BA Connect to Flybe in March, is currently part of a consortium considering a takeover bid for Spanish flag carrier Iberia, in which it already owns a 10% stake.
The announcement helped shares in British Airways rise 2% to 433.5p.