S&P Cuts British Airways' Rating To Junk Status

Standard & Poor's on Friday cut its rating on British Airways to junk status and said it may cut the rating again, citing a deteriorating outlook for airlines as the global recession drags on.

British Airways' risk profile will likely not meet the standards for an investment-grade rating for several years, Standard & Poor's said in a statement.

S&P cut British Airways' corporate credit rating by one notch to "BB-plus," the highest junk rating, from "BBB-minus."

The downgrade came a day after British Airways predicted a second year of operating losses and said it would make further job cuts.

"British Airways has reported a progressive weakening of demand in recent quarters, most notably for high-yielding premium traffic," S&P said. "Slowing demand appears to be having the most effect on important transatlantic and Asia-Pacific routes."

A weaker British pound is also hurting profits, S&P said.

"We see the weak pound as further dampening domestic demand for foreign travel and raising the US dollar-based part of British Airways' costs," S&P said. "This, in our view, far outweighs the effects of the sharp decline in fuel prices from their mid-2008 highs."

British Airways also has significant fuel hedging contracts in place, which will delay the positive effects of falling fuel prices, the agency said.