One of the big two credit ratings agencies believes federal government backing for Qantas would be a positive for the airline's credit position but points out that the extent of the benefits will depend on how far the helping hand extends.
Moody's comments underscore how the Abbott government's response to Qantas' pleas for financial assistance will be crucial to whether the airline maintains its prized investment-grade credit rating.
Qantas has pursued an aggressive lobbying campaign to gain government assistance by targeting Virgin Australia, claiming it has an unfair advantage due to its backing by state-owned airlines including Etihad and Singapore Airlines. The government is considering a range of options including a debt guarantee, cheaper direct loans or buying a cornerstone stake in Qantas.
In its first comments since the government confirmed it was considering support, Moody's said assistance would be credit positive for the airline but the degree of benefits would depend on a range of factors.
They included whether government support was an explicit guarantee for certain classes of debt, which "could lead to rating differentiations between the various unguaranteed classes of debt".
Moody's said a decision to buy a stake in Qantas would "point to the government's view of the importance of Qantas as the national carrier".
Verbal guarantees or so-called "letters of comfort" would "illustrate a proactive position and would point to a level of support", it said.
The previous government gave Qantas an implicit guarantee in August when it issued a letter of comfort. The airline was told it could use the letter to impress on ratings agencies that it was considered an important company for the nation.
"A form of government support would offset the effects of a very challenging domestic business, which faces downward yield pressure, driven by surplus capacity," Moody's said in its note to clients
Qantas has refused to say which form of assistance it wants. Moody's reiterated it believes Qantas' yields - or return on fares - will remain under pressure for 12 to 18 months.
Unless Qantas management adopted measures to counteract the fall in yields, Moody's said, the deteriorating conditions would "continue to exert downward pressure on the airline's credit metrics".
Qantas is one of only three airlines that Moody's and Standard & Poor's rate investment grade. Moody's downgraded Qantas in January 2012 from Baa2 to Baa3, which is the last investment grade above junk status. Its borrowing costs will surge if it loses its investment-grade rating.
In an attempt to head off what it believes will become a "significant leg-up" for its rival, Virgin has demanded the government offer it the same level of support as it gives Qantas to avoid the market becoming "even more distorted".