Air NZ's credit rating is upgraded

SYDNEY - Standard & Poor's Ratings Services has raised its rating on Air New Zealand to B-plus from B.

The rating action reflected the expectation the New Zealand Government will remain the airline's major shareholder for some time, given the recent rejection of the joint airline operation between Air New Zealand and Qantas by the High Court in New Zealand.

The rating also reflects the restructuring of Air New Zealand's short-haul operations.

Air New Zealand reported satisfactory results for fiscal 2004, with a 10 per cent increase in pretax profit (before unusuals) to $234.7 million.

However, growing competition on several key routes and high fuel prices prompted management in August to state that it would be challenging for the company to repeat that performance this year.

Since then, fuel prices have climbed higher, which will only be partially offset by the airline's fuel hedging programme and surcharges.

Furthermore, liabilities will increase, with the airline expected to spend about $1.8 billion to upgrade its international fleet and service offering in the next three years.

Nevertheless, S&P said Air New Zealand's credit quality should remain stable given the presence of the Government as the controlling shareholder and its track record of assistance, which should cushion any deterioration in the airline's finances.

- AAP