Originally Posted by adsyj
I undestand that this is a credit downgrade, therefore the cost of QF debt (borrowings) increases to reflect an increased risk. Is this right?
It's a view of an analyst team regarding the future strength of Qantas' earnings that is used by various businesses to determine what level of exposure they will have to a business and what rate they will offer financing for (you are right to say less risky = cheaper funding, increased risk = more expensive funding).
So it's not a credit downgrade per se, it's an analysis that says they feel Qantas' earnings will come under pressure from fuel prices, tougher market conditions overall and specific Qantas challenges on top of that. Ultimately that feeds in to creditworthiness because pressure on earnings equates to more difficulty repaying etc.
Given Qantas' fleet expansion plans this is a pretty big deal. How will they fund those 787s? What will the cost be?
Overall a serious concern for the beancounters.