Lead US rating agency Moody's has downgraded All Nippon Airways' long-term debt below its traditional investment grade, raising concerns over growing competition in deregulated Japanese markets and recession in the domestic economy.

The warning comes after another round of losses among the major Japanese carriers was confirmed by the latest group results. ANA, which had already published figures for the parent airline, went on to post a group net loss of ´5.3 billion ($41 million) for 1997/8 and forecasts a similar deficit for the current financial year.

Moody's cautions that the airline not only faces tougher competition on its core domestic routes, but also internationally, after the USA-Japan open skies pact. ANA, which weathered a bitter pilots' strike earlier this year, has pledged to continue with restructuring, but Moody's believes that little improvement is likely without "drastic cost-cutting measures" or major tax breaks.

ANA's latest corporate restructuring plan, revealed at the end of June, plans to hold seat capacity stable over the next three years on domestic routes, but is committed to two years of 10%growth on international routes. Cutbacks include reducing planned new aircraft deliveries from 30 to 21 through to 2001 and refocusing the network on profitable services.

The group's total investment is due to be trimmed by 20% from the original budget, with the hope of bringing down debt to ´930 billion. Moody's warns, however, that current commitments will make it difficult to cut high debt levels in the near term.

Source: Flight International