SYDNEY--Qantas Airways Ltd.'s (QAN.AU) credit rating from Standard & Poor's Ratings Services came under increased threat Friday after the agency said it had put the airline's BBB status on credit watch with negative implications. The airline's investment-grade rating, however, would only be lost if S&P downgraded the BBB rating by two notches--given the current rating sits two levels above junk status. Qantas shares were little changed immediately following S&P's announcement. Qantas on Tuesday surprised the market by forecasting a full-year loss and pre-tax underlying profit of A$50 million-A$100 million, as high fuel costs, Europe's economic woes and competition from state-backed Middle East carriers widen losses at its ailing international operations. The earnings guidance was well below analyst expectations of around A$300 million and last year's figure of A$552 million, sparking concern over its capital position. "The magnitude of the losses from Qantas' international business underscores the difficulty in turning around the segment," May Zhong, a credit analyst at S&P, said in a statement. S&P said it would assess the airline's turnaround strategy for the international operation and consider its earnings outlook over the next one-to-two years. It said any downgrade would likely be only by one notch, and that the rating review is expected to take 90 days. -By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com
