Air NZ needs $1.5b in capital: analysts

AIR New Zealand would need to raise as much as $1.5 billion to repay the Government loan, top up working capital and cover the cash it needs to keep going until the border reopens.

That is the base case of analysts at investment bank Jarden who have a sell rating on the national carrier's shares.

Air New Zealand is due to release its halfyear result next Thursday and has already signalled an intention to undertake a capital raising before June 30.

The Government has said it will participate in any capital raising in order to maintain its 52% shareholding.

But the exact size of the equity raising has yet to be confirmed.

Jarden analyst Andrew Steele said in a note he expected any capital raising would be sized to repay the outstanding balance on the Government's $900 million loan to Air New Zealand, provide a topup to its cash working capital and cover its ongoing cash burn.

‘‘Our base case now assumes a capital raise of $1.5 billion, which we estimate would satisfy each of these elements.’’

A capital raising that big would exceed even last year's biggest in which Auckland Airport raised $1.2 billion from its shareholders.

Mr Steele said as New Zealand's borders were still closed he expected Air New Zealand would remain making heavy losses for the next year.

He is forecasting Air New Zealand to make a beforetax loss of $218.5 million for the halfyear, down from the corresponding period last year when it made $198 million.

Mr Steele expected debt levels for the airline to have increased from $3 billion to $3.5 billion during the half and for its available cash to have reduced from $1.1 billion to from $500 million to $600 million.

Probably, delays in opening the transtasman bubble had also prompted a downgrade to earnings forecasts for the airline.

‘‘The key area of revision is to delay the opening of Tasman/ Pacific Island travel to the first half of 2022, and first longhaul flights until second half of 2022. In addition, we have updated our fuel cost and fuel consumption assumptions.’’

He is forecasting a fullyear pretax loss of $489 million up from a previous estimate of a $351 million loss for the airline.

He expects Air New Zealand to return to a slim pretax profit in 2022 before bouncing back more fully in 2023.

But the pending capital raising has prompted the analysts to maintain a negative view on the stock.

‘‘We retain our sell rating reflecting our view that given AIR's requirement for what would likely be a highly dilutive capital raise, ongoing nearterm losses, lack of comfort on the timing and trajectory of any earnings recovery, the shares present a negatively skewed risk/reward.’’

Jarden has a 12month target price on the stock of $1.25. Its shares were trading at $1.60 yesterday. — The New Zealand Herald