Air New Zealand Limited (ASX: AIZ) today announced an investment of US$2.7 billion in its international network to purchase eight high-fuel efficient Boeing 787-10 Dreamliner aircrafts.
The investment amount stated above reflects the current list prices and Air New Zealand has negotiated a significant discount on those prices, which remains undisclosed as per the terms of agreement.
AIZ Chief Executive Christopher Luxon stated that powered by GE Aviation’s GEnx-1B engines, 787-10 is longer and more fuel efficient. Its efficiency of meeting the company’s current network needs, including the ability to fly missions similar to its current 777-200 fleet further seems to be the game changing proposition for the company, added Mr Luxon.
AIZ Future Network Plans (Source: Company’s Presentation)
These new long-haul aircraft would reportedly replace the company’s existing fleet of 777-200 eight aircraft, which will not be in use by 2025. This replacement is expected to result into the 25% more fuel efficiency when compared with the existing aircraft from which it would be replaced.
Mr Luxon added that this investment is a hugely important decision for Air New Zealand’s airline as it opens door to new growth opportunities on the harness of added capacity of 787-10.
Let’s take a snapshot on the chief features and benefits of 787-10 that makes it standout in the airline industry:
- Boeing 787-10 Dreamliner aircrafts are powered by GE Aviation’s GEnx-1B engines, which is the leading engine of choice on the Boeing 787 Dreamliner.
- Driven by the high-fuel efficiency, these aircrafts possess the capability to save 190,000 tonnes of carbon per year.
- 787-10 reportedly offers almost 15% more space for cargo and customers than the Air New Zealand’s existing fleet of 787-9s.
- These state-of-the-art aircraft have the potential to deliver 25% better fuel costs per seat compared to the aircraft it would replace.
This new Boeing agreement came in place after AIZ CEO Mr Luxon signed the letters of intent with GE Aviation’s newly named Vice President of Global Sales and Marketing Jason Tonich and Boeing Vice President Commercial Sales and Marketing Asia Pacific Christy Reese at the company’s headquarter in Auckland on 27 May 2019.
In addition to the eight firm orders announced by the company today, the agreement provides for extension option to increase the number of aircraft to maximum 20. The airline has also secured the negotiation substitution rights for future network flexibility, which permits a switch to smaller 787-9s from the larger 787-10 aircraft, or a mix of the two models.
The report read that the first new aircraft is expected to be delivered by 2022 while the remaining aircrafts are projected to join the fleet of Air New Zealand at intervals through 2027.
In the separate announcement to ASX, Air New Zealand also provided an update on its Fiscal 2019 Outlook. The company now targets 2019 earnings before taxation to exceed $340 million, compared to the previous guidance of 2019 earnings before taxation to be in the range of $340 to $400 million.
AIZ projection for annual visitor growth rate, visitors in millions. The forecast annual growth rate of 4% represents the forecast CAGR for international visitor arrivals to New Zealand in the period 2018 to 2025. (Source: Company’s Presentation)
The updated outlook is based on the current market environment and is reflecting an additional ~$25 million headwind from increased jet fuel prices as an average jet fuel price for the second half of the year is estimated to US$78/bbl.
AIZ stock last traded at $2.560, down 1.538%, on 27 May 2019. The stock has closed at a price to earnings multiple of 10.070x with a market capitalisation of $2.92 billion as at the above stated date.