Airline delays capital raising amid cash burn

Air New Zealand has been given a three-month breathing space to get a better handle on how much money it needs to raise as it continues to burn through cash.

The airline and its majority shareholder, the Government, said yesterday they have agreed to delay a planned equity capital raising which was originally expected to be completed by June 30. The proposed capital raising is now expected to be completed before September 30.

Air New Zealand has burned through more than $1 billion in cash since the Covid-19 pandemic hit, as it faced ongoing costs while being unable to fly many of its routes.

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

‘‘Financially it’s still very challenged by the cash burn that it’s encountered over the last 12 months, and the likely cash burn that will continue until borders fully reopen and it can resume long-haul services,’’ he said.

The airline would use the threemonth delay to get a better indication of how much capital it needed to raise. ‘‘Safe to say it will be well in excess of $1 billion of new equity capital.’’

The Government, which owns 52 per cent of Air New Zealand, last year extended a $900 million loan to help support the business, and said in February it would take part in the capital raising to keep its majority shareholding. It had the ability to turn the loan to equity.

Air New Zealand chair Dame Therese Walsh said yesterday that factors influencing the capital raising decision included the Covid19 vaccination programme, the implications of border reopenings, and the announcement of the transTasman quarantine-free travel bubble, starting on April 19.

‘‘In light of these evolving circumstances, the Crown and the company have agreed it would be appropriate to defer the equity capital raise to allow time to assess these evolving circumstances further,’’ Walsh said in a statement to the NZX.

The Crown will provide an increased facility of up to $600m, bringing the total available to Air New Zealand to $1.5b, to see it through until the capital raising.

The Government loan or Crown Standby Facility, arranged just before lockdown in March 2020, will now be available through to September 2023, an extension of 16 months.

Bowley said the $600m facility extension was ‘‘more a theoretical exercise than a practical exercise, and really a function of needing to get through the year-end audit with a going concern audit opinion, which that size of funding facility should more than adequately provide’’.

The outlook was only going to get better for Air New Zealand, he said.

‘‘With border reopenings likely on a more elevated scale, back end of this year, early next year – subject to the vaccination time frames – that’s only good news for Air New Zealand in terms of being able to provide more services to more destinations and therefore carry more passengers.’’

The loan will continue to be in two tranches; $1b at 2.5 per cent to 5.0 per cent interest a year, and a second amount of $500m at 4.0 per cent to 5.0 per cent per annum. A base rate calculated against the benchmark bank bill rate also applied.

Air New Zealand would repay the money borrowed from proceeds of the capital raising. The airline’s borrowing remained at $350m.

The start of the travel bubble was expected to improve the airline’s cash burn, but Air New Zealand would not give updated guidance on how much cash it was burning through, Walsh said.

The outlook was only going to get better for Air New Zealand. Andy Bowley Forsyth Barr head of research