Media Report...Just 4 Titan 404
RISING fuel costs and tight credit conditions pose a new dilemma for Qantas directors, who are in New York for a crucial board meeting.
The directors are now in New York for what the airline says is the most important board meeting in years.
Top of the agenda is the fuel crisis, which has caused the carrier's shares to tumble over the past year, halving the value of the business.
Qantas is now worth a little more than $20 billion and has committed to a total fleet replacement program worth about the same amount.
A year ago, before fuel soared to more than $US100 a barrel, the airline's stock peaked at $5.87, valuing it at just more than $40 billion.
Yesterday the stock closed at $3.06, down another 6 or 1.92 per cent.
The falling share price will put Qantas under even more pressure by affecting credit costs at a time when the airline is about to seek finance for a new fleet of fuel-efficient Airbus super jumbos and Boeing Dreamliners.
Ratings agency Moody's yesterday cranked the pressure further by adivising that it had Qantas under review for a possible credit downgrade.
The agency said the airline's third lowest investment grade credit rating of Baa1 could be lowered if it was unable to offset surging jet fuel prices.
"Cost side pressure, and most critically the cost of fuel, have raised the level of financial risk, and Qantas is in the process of implementing rapid cost and revenue-side initiatives to protect its profit margins," said Moody's vice-president Ian Lewis, the agency's lead analyst on Qantas.
He added that Qantas faced significant challenges because the airline was already "weakly positioned within its ratings".
These issues will no doubt influence the decision Qantas directors have to make about yet another new aircraft.
Apart from the A380 and Boeing Dreamliner, the airline has to find a replacement for its 13 ageing 747 Boeing jumbos.
The only option available at present is the Boeing 777-300 ER, (extended range) twin jet, which is reputed to be the most fuel-efficient aircraft flying.
It is understood that one of the reasons for holding this week's board meeting in New York was to hold talks with Boeing president James McNerny who is keen to sell the aircraft to Qantas, a move which could see the airline trade some of the options it holds for Dreamliners in exchange for the 350-seat 777s.
Qantas chief executive Geoff Dixon has told both Boeing and Airbus the aircraft to be chosen as the 747 replacement has to carry 350 passengers and fly the Pacific non-stop.
The 777 has all of these atributes