Air New Zealand’s capital increase delayed



Air New Zealand has been given a three-month respite to better manage the amount of money it has to raise as it continues to spend money.

The airline and its majority shareholder, the government, said on Friday they had agreed to delay a planned capital increase that was initially due to be completed by June 30. The proposed capital increase should now be completed by September 30.

Air New Zealand has spent more than $ 1 billion in cash since the start of the Covid-19 pandemic as it faces ongoing costs while being unable to travel many of its routes.

Forsyth Barr’s head of research Andy Bowley said the airline could not continue to operate indefinitely under the current circumstances.

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“Financially, it is still very difficult because of the consumption of liquidity that it has encountered in the last 12 months, and the likely consumption of liquidity which will continue until the full reopening of the borders and the resumption of services. long-haul, ”he said.

The airline would use the three-month deadline to get a better idea of ​​how much capital it needed to raise. “You could say it will be well over $ 1 billion in new equity.”

The proposed fundraising is now expected before September 30.

PROVIDED

The proposed fundraising is now expected before September 30.

The government, which owns 52% of Air New Zealand, last year made a $ 900 million loan to help support the company, and said in February it would help raise capital to keep its majority stake. He had the ability to turn the loan into equity.

Air New Zealand President Dame Therese Walsh said on Friday that factors influencing the decision to raise capital included the Covid-19 vaccination program, the implications of reopening borders and the announcement of the travel bubble without trans-Tasman quarantine, from April 19.

“In light of these changing circumstances, the Crown and the company have agreed that it would be appropriate to defer capital raising to allow time to further assess these changing circumstances,” Walsh said in a statement to NZX.

The Crown will provide an increased facility of up to $ 600 million, bringing the total available to Air New Zealand to $ 1.5 billion, until capital is raised.

The government loan or Crown Standby Facility, set up just before the lockdown in March 2020, will now be available until September 2023, a 16-month extension.

Bowley said the extension of the $ 600 million facility was “more of a theoretical exercise than a practical exercise, and really a function of the need to pass the year-end audit with an audit opinion. continuity, which this size of financing facility should more than adequately provide. ”.

The outlook would only improve for Air New Zealand, he said.

“With the border reopening likely on a larger scale, later this year, early next year – subject to vaccination deadlines – this is only good news for Air New Zealand in terms of ability to provide more services to more destinations and therefore carry more passengers.

The loan will continue to be in two installments; $ 1.0 billion at an interest rate of 2.5% to 5.0% per annum, and a second amount of $ 500 million at 4.0% to 5.0% per annum. A base rate calculated against the benchmark banknote rate also applied.

Air New Zealand would repay the borrowed money from the fundraising proceeds. The airline’s loan remained at $ 350 million.

The onset of the travel bubble is expected to improve the airline’s cash consumption, but Air New Zealand would not provide updated guidance on how much money is being spent, Walsh said on Friday.

In February, when the airline recorded a six-month after-tax loss of $ 72 million, managing director Greg Foran said Air New Zealand had depleted a “huge” billion in cash reserves since the start of the year. pandemic.

Cash consumption fell to an average of $ 79 million per month from September to January 2021, and in February Air New Zealand said an average monthly cash consumption of between $ 45 million and $ 55 million was expected for five months until June 30.

The airline is a strategic asset to the government, given its key role in supporting the international tourism and export industries, as well as the domestic travel network.

In a letter to Air New Zealand on Thursday, Finance Minister Grant Robertson said the government remains committed to being the majority shareholder in the airline.

“I recognize that the past 12 months have been an incredibly difficult time for Air New Zealand, and like others in the airline industry around the world, Air New Zealand has needed the support of its shareholders,” said Robertson.

The government expected Air New Zealand to continue to be the national carrier, maintain a comprehensive national network, remain committed to environmental sustainability and continue to act as a responsible corporate citizen.

It was also expected to continue to operate as a profitable and commercially sustainable company.

Air New Zealand shares rose 0.5% to $ 1.82 in the early afternoon.


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