Shares plunge as trading halt ends

Shares in Air NZ plunged in value by more than 40 per cent after the Government announced it will lend up to $900 million to the national carrier as it faces ‘‘unprecedented challenges’’ created by the coronavirus pandemic.

Airline and government officials have been scrambling to finalise a financial lifeline for the airline, which has cut international capacity by 80-85 per cent and warned up to 3750 staff could be made redundant due to the impact of Covid-19 on air travel.

Finance Minister Grant Robertson said a debt funding agreement, announced yesterday morning, was negotiated on ‘‘an arms’ length basis’’, with each party independently advised. He said it was possible the debt could be turned to equity, which would increase the Government’s existing 52 per cent shareholding.

When the New Zealand stock exchange opened at 10am and Air NZ shares were lifted out of a trading halt in place since Monday, its shares immediately dropped by 44 per cent to trade at 87 cents.

Shares in Air NZ have fallen 64 per cent this year, wiping nearly $2 billion off its capitalisation.

The loan will be provided in two lots – a tranche of $600m with interest expected to be 7-8 per cent and a second tranche of $300m at an expected 9 per cent interest rate.

UBS aviation analyst Marcus Curly said it was forecasting Air NZ to be burning $211m a month from the start of April while Forsyth Barr analyst Andy Bowley estimated its monthly overheads to be $160m per month. In the 2019 financial year Air NZ had cash reserves of $1.1b and its labour bill was $1.4b. In 2019, it generated $5.8b in revenue.

Robertson said the risk of Air NZ shutting down was real and the loan option was chosen because it could be moved forward ‘‘at pace’’.

‘‘Without this intervention today New Zealand was at risk of not having an airline with national carrier status,’’ Robertson said. ‘‘That was not acceptable.

‘‘I am extremely mindful of the uncertainty and the anxiety of the staff of Air NZ. We will be doing our very best by these staff.’’

Separately, and distinct from the agreement, the Government is working with Air NZ to ensure other key services can be provided, including repatriation flights, maintaining critical cargo transport lines and having Air NZ staff assist the health response.

Those services will be provided for under separate commercial arrangements to be negotiated.

Robertson said key trade routes to keep open were Australia, the United States, Singapore and Hong

Kong. The loan will be available for two years.

The interest rates on both tranches will increase by 1 per cent if the loan remains after 12 months.

Air NZ must satisfy other conditions, including the cancellation of its 2020 interim dividend of 11 cents per share which equates to a total of $124m, that was announced to the market on February 27 and was due to be paid to all shareholders, including the Government, on March 25.

Robertson said it must also meet minimum service provisions including continuing to fly to key international destinations and safeguarding the domestic network with flights continuing to all current destinations.

The agreement also allows for the conversion of the loan to equity at the request of the Crown.

‘‘Air NZ has a unique and critical role in our economy and society.

‘‘Also, the Government owns 52 per cent of the company, which means we have a responsibility towards it. We have acted swiftly to put this loan agreement in place and support our national carrier.’’

Air NZ has been hit hard by the coronavirus outbreak, slashing flights and warning of redundancies of 30 per cent of staff.

‘‘This agreement means Air NZ is in a position to play its part in making sure Kiwis can return home from overseas and that essential flights and freight lines for goods like pharmaceuticals remain open by ensuring flights continue to and from key international destinations.

‘‘The agreement also safeguards the domestic network, with flights assured to all current destinations,’’ Robertson said.

‘‘While today’s action means the company can continue to operate, given the unprecedented shock to the global aviation industry caused by Covid-19, Air NZ has advised there will unfortunately be job losses as capacity is cut.

‘‘The Government is actively working with Air NZ on what can be done to support these workers.

‘‘This includes ... a separate process to mobilise some of Air NZ’s workforce to other areas of our fight against Covid-19, including supporting the health response.’’

Air NZ chairman Dame Therese Walsh said the airline was greatly appreciative of the Government’s support.