The international business rating agency, Moody's, has downgraded its rating of the Swissair Group over concerns that the company will be hit with higher than expected costs when it divests itself of its share in loss-making carriers abroad.
Ratings by agencies such as Moody's are a key guide for international investors when comparing companies across different sectors and different countries. Moody's has cut Swissair's long-term issuer rating from "Baa3" to "Ba3" and the short-term rating from "Prime-3" to "Not-Prime".
Moody's said in a statement that the move reflected the increased costs that Swissair was likely to face when it severs its links with partner airlines in France (AOM/Air Liberté) and Belgium (Sabena).
"The rating downgrade is also based on increased pressure on Swissair's core operations due to high fuel costs and the impact of an economic downturn on the airlines and the airline-related businesses such as catering," said Moody's.
Moody's noted that despite Swissair's flag carrier status there has as yet been no indication of tangible support by the Swiss government. It added that there was little room for direct subsidies because of Switzerland's relationship with the European Union.
Moody's said the ongoing rating review would focus on costs, which may arise from Swissair's exit from its partner airlines. It added that it would also look at the proceeds and timing of asset disposals, the potential for strengthening the company's equity base, and its strategy to secure the required liquidity through the restructuring process.
Swissair Group announced on Tuesday that it was to restructure its aircraft-leasing portfolio, which is controlled by its subsidiary, Flightlease. The aim is to concentrate on aircraft needed for Swissair operations.
The company said that the planned exit from Flightlease's third-party business was in line with the group's strategy to focus on its core business of Swissair and the regional airline, Crossair.
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