RATINGS RATIONALE

"With high leverage for its Baa3 rating the planned net reduction in Qantas' financial leverage is credit positive. The small buy-back in this context has minimal impact", says Ian Lewis a Moody's Vice President and Senior Credit Officer.

"While Qantas' rating outlook remains stable at this time, the rating has however only minimal headroom while high leverage persists and while the operating environment remains volatile, with high jet fuel costs and heavy competition for the carrier both internationally and domestically", adds Lewis who is also Lead Analyst for the company.

"We expect Qantas' financial leverage to reduce materially within FY13 and to be within our rating down-driver of 4.5x gross debt to EBITDA and this expectation is factored into the rating and stable outlook", says Lewis.

"At the same time we note the recently announced plans by Qantas and Emirates to activate a proposed Master Coordination Agreement and the strong credit positive implications for Qantas' business, particularly its mainline international operations, should the deal be successfully finalised as proposed", says Lewis.

"Qantas remains one of only a few investment grade rated carriers in the Moody's ratings universe. The Baa3 investment grade rating continues to reflect the company's good operating model, strong domestic franchise, and liquidity. Nevertheless, the challenging operating environment and strong competition present ongoing material challenges for the carrier."

The outlook for the rating remains stable given the company's still strong liquidity profile and Moody's current expectation that the company's financial profile should remain manageable within the Baa3 rating parameters over the next 12-18 months.

The rating could face material negative pressure in the event that the company's operations are further impacted by deterioration in the major economies that it services, including its domestic market where it also faces heightened competition. The rating could also be pressured if Qantas faces sustained high fuel prices and/or high capex. This could be indicated by the ratio of adjusted Debt/EBITDA higher than 4.5 x and/or RCF/Net Debt falling below 17% on a consistent basis. A material dilution of Qantas' current cash position - which affords it strong liquidity - could also negatively impact the ratings.

An upward rating trend is unlikely in the next 12-18 months. Over the longer term, positive rating movement could emerge if Qantas commences to deleverage to levels commensurate with a higher rating level. Financial metrics that Moody's would look for include Debt/EBITDA trending below 3.75x and RCF/Net Debt staying above 25% on a consistent basis.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Qantas Airways Ltd was the Global Passenger Airlines Industry Methodology published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Qantas Airways Limited, based in Sydney, is the largest airline in Australia.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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Ian Lewis VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Terry Fanous Associate Managing Director Corporate Finance Group JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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