Air New Zealand (NZX:AIR): Why did it postpone the capital raising plan?

Highlights

  • Air New Zealand after discussion with the Crown has decided to defer the earlier planned capital raise, until next year’s first quarter.
  • The government rolls out a plan of action for reconnecting New Zealand to the world.
  • The Company would receive the repayment of about NZ$310 million in 1Q 2022.

International airlines operator, Air New Zealand Limited (NZX:AIR) (ASX:AIZ), made an announcement related to the capital raise timing and liquidity situation.

The update followed the Government’s plan for reconnecting New Zealand to the rest of the world pertaining to the ongoing pandemic.

Image Source: © 2021 Kalkine Media

The Government’s plan is inclusive of how the borders will gradually be reopened and how updated vaccine rollout will facilitate the pathway for things to go back to normal, eventually.

The aim is to gradually open the borders in the first quarter of the next year.

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Capital raise delayed until 1Q CA22

In April 2021, Air New Zealand made public its intention to raise capital constituting of equity and debt, set to be accomplished before 30 September 2021.

The Company also spoke about the letter it received from the Minister of Finance, which stated that they do not feel the current situation is feasible for the Crown to be able to make a pre-commitment regarding its support to the equity raise plan.  

Subsequently, the Company after discussion with the Crown has decided to defer the earlier planned capital raise, till the time it seems more suitable by the next year’s first quarter.

Crown intends to keep invested in the Company

The Crown has yet again confirmed that it should continue its majority shareholding in the Company considering how important the airline was for the society and the economy of the country.

The Crown has further confirmed its participation in raising the equity capital, by buying the minimum number of shares required in order to maintain its position as a majority shareholder.

The Company further said that after the recapitalisation was complete, it should pay all debts that it had drawn from the Crown Standby Facility.  

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Crown Standby Facility to further support Air New Zealand

It was further updated that while the drawing interest rates for Tranches 1 and 2 were supposed to see a 1% rise after 29 October 2021, the Minister of Finance and the Company had decided otherwise. This would mean that the Tranche 1 margin will stay at 2.50%, while Tranche 2 will be at 4.00%.

The payable line fee on the Crown Standby facility shall be at 1.00%, which shall mean an interest rate of about 4.20% in Tranche 1 and 5.70% in Tranche 2.

Air New Zealand’s liquidity situation

In an announcement made by the Company on 4 August 2021, it was revealed that the Company wishes to make further drawings from the Crown Standby Facility. This shall be as an effect of the recent trans-Tasman travel bubble pause along with the aircraft related payments in the near future.

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Even though the cash burn guidance remains suspended, the Company added that there shall be the repayment of about NZ$310 million with regards to PAYE payment delays from IRD to happen over the course of January to March 2022.    

On 13 August 2021, Air New Zealand was trading at NZ$1.485, up by 1.02%, at the time of writing.

Bottom Line

The Company with support from the Government as well as the Crown Standby facility is on its road to recovery. Air New Zealand plays a critical part in the country’s economy, and it didn’t deter from its goal of growth even during the difficult period of the pandemic. The upcoming months shall be pivotal in terms of determining how things fare for the airline.

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