Hot on the back of its profit warning, British Airways has suffered a further blow, this time from ratings agency, Standard & Poors, which has downgraded the airline’s debt rating to “junk status”.

S&P said it was placing the carrier’s debt rating on “credit watch with negative implications”, only one level above its non-investment grade.The influential ratings agency said its bearish stance was based on “the cyclicality of the airline industry, volatile fuel costs, and profit concentration at BA’s transatlantic network”.

Credit analyst Leigh Bailey said BA’s warning that it would sink £150m into the red “marks a clear downward shift in performance relative to our expectations and makes reference to the very challenging environment”.

He also voiced major concerns over the pound’s sharp fall against the US dollar and other currencies, in particular the Euro. “The weak pound will further dampen domestic demand for foreign travel and raise the US dollar-based part of the group’s costs, ” he added.

Andreas Kindahl, another S&P analyst, said the rating downgrade implied that there was “a 50:50 chance that the next move would be down”.

The news comes in a week that BA chief executive Willie Walsh is due to Fernado Conte, chairman of Iberia.

BA initially wanted no less than 60% of any merged carrier, but the slump in BA’s share price, along with the fall in Sterling against the Euro, has valued it at less than Iberia - £1.53bn vs. £1.64bn on last night’s share prices.
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