Capital Markets Update- Air New Zealand Game Play

  • Jun 12, 2020 NZST
  • Team Kalkine
Capital Markets Update- Air New Zealand Game Play

Summary

  • AIR clarifies that it has $900 million from the Crown which is undrawn
  • Airline has implemented various measures to reduce costs
  • The company is expecting to report an underlying loss for the full year

Amid this COVID-19 pandemic, many companies raised capital through various measures. Recently, Auckland International Airport Limited (NZX: AIA) made an announcement that its NZ$200 million share purchase plan has been closed oversubscribed. Amid such environment, Air New Zealand (NZX: AIR) has noted the recent speculation included in Australian Financial Review with regards to AIR considering a range of financing options, that includes a potential raising of capital.

To this, AIR responded by saying that it currently has a $900 Mn facility from the Crown which remains to be drawn. The company continues to evaluate its capital structure and the various alternatives available to it, which includes taking advice from professional advisers if required.

Let us look at what has happened with the company amid this COVID-19 pandemic.

Cash Position of AIR

Before the coronavirus outbreak, AIR was in a robust position with a strong balance sheet as well as short-term liquidity of above $1 Bn.

According to the release dated May 26, 2020, AIR had no financial covenants on existing or new debt facilities. Also, AIR had no significant maturities of debt until 2022. When the early restrictions for global travel were declared, it immediately secured a loan facility of up to $900 Mn with New Zealand Government, to strengthen the liquidity position as well as offer the airline with enough flexibility to react to a range of potential demand recovery scenarios.

As at 25th May 2020, the company had a short-term liquidity of ~$640 Mn, which does not involve any funds from loan facility with the Government.

The airline has already implemented a number of actions across every aspect of its cost base and capital expenditure portfolio, including:

  • Labour reductions of approximately 30 percent, or 4,000 employees, which is expected to drive annualised savings of $350 to $400 million;
  • Suspension of all short-term incentive schemes for the 2020 financial year;
  • Reduction of the Executive team by 30 percent;
  • A 15 percent reduction in the salary of the Chief Executive and Executive team, together with a 15 percent reduction in Director fees through to December 2020;
  • Deferral or cancellation of almost $700 million in expected capital expenditure to December 2022;
  • Decision to ground the airline’s Boeing 777-200 and 777-300 fleet until at least the end of calendar 2020.

 

Air New Zealand Provided Monthly Update

Air New Zealand Limited has provided major highlights for the month of April 2020 and passengers carried during the month decreased by 98.9 per cent as compared to April 2019. On YTD basis, total passengers carried decreased by 12.5 per cent.

Key highlights of the month are given below:

 

Key Data (Source: Company Reports)

Key Data (Source: Company Reports)

 

Air New Zealand Declared Executive Changes

Air New Zealand Limited has decided to reduce the size of his Executive team as the company is reducing its scale of operations due to the impact of coronavirus pandemic. The CEO of the company, Greg Foran, has decided to reduce the size of Executive team to six from nine.

  • Nick Judd, the Chief Strategy Networks and Alliances Officer, left the company on 31 May;
  • Mike Tod, the Chief Marketing and Customer Officer, stepped away from the airline on 31 May;
  • Chief Air Operations and People Safety Officer, John Whittaker, will leave the company on 31 July.

 

Outlook and Earnings Update for 2020

The company had a robust start for FY20, however market conditions weakened materially in early March 2020. The spread of coronavirus started to expand globally. Because of the uncertainties led by the pandemic, the company withdrew its earnings guidance.

Across March 2020 and April 2020, AIR reduced its network capacity by over 95% as demand declined to about zero post the implementation of travel restrictions.

For the second half of FY20, the airline’s network capacity is anticipated to be about 50 per cent lower than the pcp, led by a decrease of about 90 per cent in the fourth quarter. Notably, the airline is now anticipating reporting an underlying loss for FY20.

A quick look at the financial performance in 1H

For the six months ended 31 December 2019, AIR posted earnings before other significant items and taxation of $198 Mn, as compared to $217 Mn in the prior period, reflecting slower demand growth environment, weakness in the global cargo market as well as unrest in Hong Kong.

  • Earnings before taxation stood at $139 million and net profit after taxation stood at $101 million;
  • The company reported operating revenue growth of 3 per cent driven by solid demand across the airline’s Domestic and Pacific Islands networks, and recently launched services into North America and Asia;

 

Stock Performance

The stock of AIR closed the day’s trading at NZ$1.520 per share on 11th June 2020, down by 18.28% on an intraday basis. The stock’s 52-week low and high is $0.800 and $3.050, respectively. The company has given a total return of ~31.14% in the time period of one month.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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