China Airlines' credit rating was cut by Taiwan Ratings Corp (
Taiwan Ratings cut the rating to "twBBB," three notches below investment grade, from "twBBB+," because China Airlines' sales and profit will fall, and insurance expenses will probably rise two-fifths after the airline had its fifth fatal crash in 11 years on Saturday, the agency said in a statement.
"It will make it more difficult for them to raise money and push the stock down further," said Margaret Lin, who manages NT$800 million at Truswell Securities Investment Trust (
China Air also grounded its four Boeing Co 747-200 cargo planes for inspection, forcing the cancellation of 12 flights a week. The planes are the same model as the one that broke up in midair and plunged into the sea near Taiwan on Saturday. None of the 225 passengers and crew on board have been found alive.
"Whenever people want to buy the stock, something terrible happens. That's the last straw," Lin said. "If we want to buy an airline stock, we'd choose another one, such as EVA."
CAL's shares fell 6.9 percent to NT$14.15, adding to a 6.8 percent drop yesterday. Shares of EVA Airways Corp, Taiwan's second-largest carrier, rose by their daily limit of 6.7 percent to NT$14.35, adding to a 6.8 percent rise yesterday.
The downgrade reflects "falling load factors, reduced passenger revenue, and the rising insurance costs, all of which will hurt the company's earnings and cash flow generation over the next six to 12 months," Taiwan Ratings said. The lower rating may make it more difficult and expensive for China Air to borrow money from banks.
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