Air New Zealand makes net loss of $454 million

Business

Our national airline is not giving any specific financial guidance for the year ahead but says each of the scenarios it is currently modelling suggests it will make another loss in 2021

27th Aug 20, 9:01am by David Hargreaves

Our national airline, Air New Zealand, has slumped to a $454 million after-tax loss for the year to June 2020.

And while it is not making any specific forecasts for the year ahead as such, the airline says "each of the scenarios we are currently modelling suggest we will make a loss in 2021".

Air NZ says short-term liquidity as of August 25, 2020 was approximately $1.1 billion, made up of cash and the $900 million standby loan facility from the New Zealand Government.

"Due to the strong cash position pre-Covid-19, swift action taken by management to reduce cash burn and a better than expected return of domestic demand after the initial lockdown was lifted in New Zealand, the airline has not yet utilised the standby loan facility. However, it expects to start drawing on these funds in the coming days," the company says.

It says "cash burn" averaged approximately $175 million per month from April to June, including higher than average refunds, redundancy payments and fuel hedge close out costs, but this reduced to $85 million for July.

"The airline is estimating the go forward average monthly cash burn to be in the range of $65 million to $85 million while international travel restrictions remain and assuming resumption of domestic travel with no social distancing requirements, as well as a continuation of government-supported cargo flights."

Air New Zealand says the Government has recently reaffirmed the Crown’s long-standing commitment to maintaining its majority shareholding in Air New Zealand, "having regard to the unique and critical role the company has in New Zealand’s economy and society".

"This is reflected in the Crown loan facility that provides Air New Zealand with liquidity support whilst the airline works through to a permanent solution. Air New Zealand is engaging constructively with the Crown as it continues to assess its capital structure and funding needs."

The net loss of $454 million (compared with net profit of $276 million a year ago) included a tax credit of $174 million. Air New Zealand said the result (pre-tax) included an $87 million loss before "significant items", while the aforementioned "significant items" comprised $541 million. As per this table.

Air New Zealand chief executive Greg Foran said Covid-19 has highlighted "once again" that the core strength of the airline is its people and their ability to respond to change quickly.

"I am in awe of the dedication, perseverance, and professionalism of Air New Zealanders across the business and never cease to be amazed at the resilience and strength of our people as we work our way through this crisis."

Air New Zealand provided this Financial Summary:

• Operating revenue of $4.8 billion, down 16% on the prior year as a result of travel restrictions due to Covid-19
• Total network capacity decline of 21% compared with the prior year
• Cargo revenue of $449 million, up 15% on the prior year
• Loss before other significant items and taxation of ($87) million
• Loss before taxation of ($628) million
• Board has determined not to declare a final dividend for the 2020 financial year, given current financial pressures
• Short-term liquidity of $1.1 billion at close of business 25 August 2020, (including funds available under the Government standby loan facility which has not yet been utilised)

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26 Comments

by FCM | 27th Aug 20, 9:12am 1598476375

Watch the share price go up in this crazy world

by Rosenstein | 27th Aug 20, 9:49am 1598478551

...on rumours AirNZ will diversify by growing hemp

by murray86 | 27th Aug 20, 10:24am 1598480663

Two reasons - to get high (in any way), and any unused will go towards making biofuel!

by SmoKey | 27th Aug 20, 10:09am 1598479768

Now that the bad news is out, it can only get better. So, share price will go up.

by Albert2020 | 27th Aug 20, 9:54am 1598478880

So in less than a year that almost billion dollar loan will be wiped out, then what?

by youngdumbandbroke | 27th Aug 20, 9:56am 1598479018

More bailout money as per usual

by murray86 | 27th Aug 20, 10:31am 1598481094

The world of airtravel has changed radically and probably forever. How it looks from here on in is anyone's guess. But regardless, Air NZ is our national carrier and i do accept that the Government will consider it necessary to keep it a float to help take the NZ brand to the world. I am less enamoured of the way it has been managed to a degree. But regardless I think it is necessary to keep it going.

by powerdownkiwi | 27th Aug 20, 12:29pm 1598488168

m86 - that's a tad dyslexic, as in cognitively dissonant.

If air travel has changed 'radically and probably forever', then the paradigm where 'taking the brand to the world' was of importance, has changed 'radically and probably forever' too.

Globalism is receding, debt is unrepayable, the bubble will pop, growth was a temporary state (Malthus was entirely correct). So 'keep going' for what?

by Hook | 27th Aug 20, 12:31pm 1598488301

So they can offer you a free ticket to somewhere that hasn't got an internet connection hopefully

by Zachary Smith | 28th Aug 20, 7:11am 1598555512

Nice one Hook. So tired of this. It's actually abundance that causes us many problems.

by murray86 | 27th Aug 20, 1:14pm 1598490880

I would suggest that this is more about marking time for the time being until we see what the new 'normal' looks like. In other discussions, I have indicated that I cannot see a future without travel. But COVID, has changed the shape of how we travel. I don't see it stopping travel, yet, else why would $millions be spent on vaccines?

Yes there are arguments for denial and others, but no one knows yet what the future looks like. I don't have a crystal ball, do you?

by mfd | 27th Aug 20, 12:03pm 1598486603

There'll be an equity raise before long - I'm surprised they haven't taken advantage of the crazy high share price already. Presumably the Government (main shareholder) want them to wait, perhaps after the election?

by Hook | 27th Aug 20, 12:29pm 1598488193

No one is going to want new shares atm so they'd have to be heavily discounted. That'd force the Govt to purchase if they want to remain undiluted, can't see it myself. As majority owner the Govt might even stop any raise for that reason.

by mfd | 27th Aug 20, 1:01pm 1598490094

You'd think so, and yet people are snapping up shares at the moment valuing the company at 1.6 billion. Sure there'll be a discount, but the alternative to an equity raise is to run out of equity and go bust, perhaps mid-late 2021. They also won't want to be drawing too much from the Government loan at 9% interest rates.

by Hook | 27th Aug 20, 1:16pm 1598491012

Yeah well there's no accounting for buyer behaviour. Forsyth and Craigs have a target price of around $1. I agree AIR will be reluctant to drawdown on the loans with their harsh interest rates but it is what it is, and it's unlikely they'll have much choice but to use it. Remember the Govt reserved the right to convert the loans to equity too, so that makes an equity raise complex.

by mfd | 27th Aug 20, 1:45pm 1598492755

That's true, maybe the Government ends up providing a back door equity raise. Difficult to see any route for a decent return from those buying at today's prices, barring some kind of miraculous recovery in customer numbers.

by Hook | 27th Aug 20, 3:29pm 1598498956

Yeah my thoughts also.. better to let the shares hit a floor and buy up large then chuck 'em in the bottom draw for a few years. AIR will dig itself out but I reckon it'll be a 5 year plan at least

by Chairman Moa | 27th Aug 20, 10:03am 1598479433

Qantas predict their loss will be in 2 billions mark.
AirNZ should merge with Virgin as both are trying to grow their business territory.

by printer8 | 27th Aug 20, 10:14am 1598480094

"The airline is estimating the go forward average monthly cash burn to be in the range of $65 million to $85 million . . "
So how certain is that estimate?
The current situation shows the very high risk and how sudden outbreaks of Covid can occur and how quickly we can move to Level 3.
From memory, this current Auckland Level 3 saw something like a 90% reduction in passengers but given the relatively short length of the lock down ANZ is not in a position to lay off staff.
How does one factor in the uncertainty of number, location and extent of further outbreaks on revenue.

by waymad | 27th Aug 20, 11:26am 1598484371

If current liquidity at 1100 million includes the 900m Gubmint ~~bailout~~ loan, that means, by applying Advanced Arithmetic, there's only 200m or less in the cashbox. Word from someone who works there is that 8 weeks leave is going the rounds, causing the inevitable booms and busts as that intersects with work pipeline demand and furloughed-employee availability. Not a pretty sight from the inside.

by Rosenstein | 27th Aug 20, 11:40am 1598485239

So AirNZ is only sitting on the equivalent of 200 Auckland houses. I'd wager there would be some property tycoons around here who are in better fiscal position than our air carrier. In fact, AirNZ should just invest the 900 million from the govt in NZ real estate until Covid blows over, then resume airline operations. Rental market needs landlords I heard

by meh | 27th Aug 20, 1:01pm 1598490094

Could be some innovative designs converting airplanes into residential apartments. Flying homes even - could be a niche luxury market.

by bw | 27th Aug 20, 1:14pm 1598490849

"there's only 200m or less in the cashbox."
And if there's still 1.12 billion shares outstanding they are worth 18 cents each, not $1.42.
And that's before things get even worse. Basically, they're worthless.
This Government Standby Facility is a farce.
https://www.bloomberg.com/quote/AIR:NZ

by Hook | 27th Aug 20, 1:34pm 1598492046

Ahh I think you need to revisit your value calcs bw. Current valuation is about 2bil+ less Govt loan (900mill) so about 1.1bill which puts Forsyth and Craigs on the money at roughly $1 +/_ margin of error

by murray86 | 27th Aug 20, 1:17pm 1598491030

Looking at the comment stream, I wonder what the trigger is that would lead the Government to understand the difference between being a currency issuer and a currency user is, and the purpose that tax serves in our economy?

by SmoKey | 27th Aug 20, 6:43pm 1598510623

It has government backing, heaps of valuable real estate, the principal entry to Paradise, and a vaccine will come. So it can only go up, may be not fly too high for a while. I think overseas interests and hedge funds will take a stake if there is an equity raising. May be $1.20 per share.