GENEVA — Airlines canceled hundreds of flights across Europe and added hours to trans-Atlantic journeys Sunday as planes were diverted around a large plume of ash spewed by an Icelandic volcano and stretching from Greenland to Portugal.
So far, the weekend cancellations have been a fraction of the flights nixed two weeks ago when jittery European air traffic authorities closed down much of the continent's airspace for fear the volcano's abrasive ash could harm jet engines. But the possibility loomed of continuing eruption, and rising costs to airlines from ongoing disruption.
The bulk of the cloud, measuring 2,100 miles long and 1,400 miles wide (3,400 kilometers by 2,200 kilometers), stretched over the North Atlantic, according to the Irish Aviation Authority. It ordered Ireland's five westernmost airports to close Sunday afternoon but allowed the country's three biggest airports in Dublin, Shannon and Cork to stay open.
Airlines diverted their trans-Atlantic traffic north and south of the cloud, causing congestion as planes tried to squeeze through remaining routes. Some connections were canceled entirely because of an offshoot of the main cloud that was snaking its way from Portugal through Spain, southern France and northern Italy, then up to Germany, the Czech Republic and Austria.
Eurocontrol, the Brussels-based agency that coordinates air traffic control centers throughout the continent, warned airlines to plan on taking on more fuel for the longer flight around the North Atlantic no-fly zone.
It said there would be approximately 24,500 flights within the European area Sunday, about 500 below average for this time of year. It said the ash cloud hovering over the continent was expected to dissipate and that most of the closed airports were likely to reopen later Sunday.
Daniel Gerstgrasser, a meteorologist with Switzerland's national weather agency, said rain would help wash out the cloud by Monday morning and no further ash drifts were expected to reach the continent in the coming 24 hours.
Longer-term forecasts were less clear. Meteorologists say that until Eyjafjallajokul (pronounced ay-yah-FYAH-lah-yer-kuhl), the volcano in southern Iceland, stops erupting, the future course of Europe's ash crisis will depend heavily on the prevailing winds. The eruption of the glacier-capped volcano has shown no signs of stopping since it began belching ash April 13. It last erupted from 1821 to 1823.
Irish airline Aer Lingus apologized to its customers for a string of flight cancellations since Tuesday, when the ash threat returned to Irish air space after a two-week break. Its trans-Atlantic services to Boston and New York were operating Sunday subject to delays.
London, 05 May 2010 -- Moody's Investors Service has today placed Portugal's Aa2 government bond ratings on review for possible downgrade, while the government's Prime-1 short-term rating was affirmed. Moody's expects that, in the event of a downgrade, Portugal's Aa2 ratings would fall by one, or at most two, notches. The review of Portugal's ratings -- which had been on negative outlook since October 2009 -- is expected to conclude within a three-month time horizon.
Today's rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges. "The review for possible downgrade will consider a repositioning of Portugal's ratings to reflect the potentially lasting deterioration in the government's debt metrics," says Anthony Thomas, Vice President-Senior Analyst in Moody's Sovereign Risk Group. "In the context of a small and slow-growing economy, such debt metrics may no longer be consistent with a Aa2 rating."
The weakening of Portugal's public finance position reflects the failure of successive administrations to consistently limit government budget deficits since Portugal joined the eurozone at its inception. "More recently, however, the government's has reiterated its objective to achieve or even surpass the deficit reduction targets published in its latest Stability and Growth Programme," says Mr. Thomas. "The well-structured debt profile means that refinancing risks are modest."
Moody's believes that increased risk discrimination in the financial markets may raise Portugal's financing costs for some time to come. Nonetheless, Moody's expects that debt service will remain very affordable in the near to medium term. Although its debt metrics may, on balance, turn out to be more consistent with a low Aa or a high A rating, the government's debt is neither unsustainable nor unbearable.
Portugal's growth challenges plus large fiscal deficits have led market participants to compare Portugal (and several other European countries) to Greece. Although Moody's believes that Greece faces far more serious fiscal difficulties than Portugal, the rating agency nevertheless sees an extended period of retrenchment for Portugal as inevitable until the country's domestic financial imbalances are corrected.
In addition to factors related to public debt sustainability, Moody's rating review will examine other aspects of the structural adjustment agenda -- in particular, the steps being taken by Portugal's policymakers to address the poor economic competitiveness and low domestic savings, which are at the root of the country's low trend growth rate. Moody's forecasts assume positive, albeit relatively slow, real economic growth.
"Portugal's growth problem is related more to its low productivity than its high costs per se," says Mr. Thomas. "The lack of a devaluation option creates stronger -- but not impossible -- headwinds for the country's economic recovery."
Portugal's country ceilings for bonds and bank deposits fall under the eurozone's regional ceilings and are therefore unaffected by this rating action.
The previous rating action on Portugal was implemented on 29 October 2009, when Moody's assigned a negative outlook to the government's Aa2 bond ratings.
The principal methodology used in rating the government of Portugal is Moody's Sovereign Bond Methodology, published in 2008, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
London
Pierre Cailleteau
Managing Director
Sovereign Risk Group
Moody's Investors Service Ltd. - England
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Arnaud Mares
Senior Vice President
Sovereign Risk Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Anthony Thomas
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
