BA costs rise as £250m bond is rated 'junk'

British Airways's bonds were downgraded to junk status yesterday by Standard & Poor's, the credit rating agency, in a move that jacks up the troubled airline's interest costs.

S&P changed its rating on BA's senior unsecured debt from BBB- to BB+.

The airline, which was already forecast to post a near-£800m loss, will see its interest charge climb by about £2.5m following a rise from 7.75 per cent to 8.75 per cent in the interest charge on its £250m bond. BA is already looking to cut its £6.5bn debt pile through property sales.

Credit ratings were also lowered at other airlines, with S&P downgrading senior unsecured debt of United Air Lines, American Airlines, Air Canada, Delta Air Lines and Northwest Airlines among others. S&P added that it may cut ratings further still.

However, the downgrading does not indicate a revision to estimates of default risk. S&P said the moves reflected "poorer prospects for recovery on senior unsecured obligations if the affected airlines were to become insolvent".

A BA spokesman yesterday said: "There is no change to our overall credit rating. We remain one of the highest rated airlines. This relates only to senior unsecured debt and it's part of S&P's general review of the sector."

The company warned earlier this month that it was heading for a "significant operating loss" this year but reassured investors that it had arranged £800m in banking facilities. Merrill Lynch, BA's house broker, has forecast that the company will make a £775m loss this year.

Unions have expressed concern that the downturn in the aviation industry after the 11 September attacks in America may force BA to lay off more workers. The company has already announced 7,000 job losses.

BA shares yesterday closed down 1.75p at 208p.