Air New Zealand reveals $46 million noncash hit after London withdrawal

AUCKLAND: Air New Zealand has released details of a $46 million noncash hit on its fullyear earnings as well as gains and expenses of withdrawing from London later this year and costs of redundancy from its twoyear costreduction programme.

Although its pretax guidance of $350 million to $450 million remains the same as the forecast last August, the outlook excluded the impact of new accounting standards for leases.

These ‘‘other significant items’’ represent events that are not reflective of the airline’s underlying financial performance, the airline said in a notice to the NZX.

‘‘Accordingly, Air New Zealand has amended its earnings guidance definition for the current financial year to make it clear that these items are not included in the earnings guidance numbers.’’

The airline will provide further details of earnings guidance for the full year when new chief executive Greg Foran releases the interim result on February 27.

This would include a picture of demand and bookings outlook as well as any expected impact from recent events, such as the coronavirus in China. The noncash accounting charge of about $46 million results from the disestablishment of certain US dollardenominated debt as fairvalue hedges.

This will appear in the interim result.

This followed clarification issued by the International Financial Reporting Interpretations Committee.

Other components of the

‘‘other items’’ are:

A gain of about $21 million resulting from the partial sale of airport slots at Heathrow Airport (it flies there daily) to an undisclosed party, following the airline’s withdrawal from the Los Angeles to London route. This will not be reflected in the interim results. The remaining sale of airport slots is expected to be recognised in the airline’s 2021 financial year for a value of the same amount bringing the total value for the transaction to approximately $42 million.

Reorganisation costs in the range of $20 million$25 million resulting from business transformation as part of its twoyear costreduction programme, as well as expected costs associated with the withdrawal from the Los Angeles to London route. These will be recognised as a $13 million cost in the halfyear result.

The pretax guidance assumes a jet fuel price of $US75 a barrel. Last year, the average price was close to $US80 but has dipped in the past few months and is now averaging under $US73 around the world.

Based on the experience of the 2003 Sars outbreak, airlines around the world are expected to take a hit from the coronavirus outbreak. Then air travel from Asia dipped by close to 10% but rapidly recovered when the outbreak was contained.

Air New Zealand flies daily to Shanghai and Hong Kong. Any widespread air travel resistance could hit it particularly hard. — The New Zealand Herald