Air NZ sees light at end of Covid tunnel
Air New Zealand boss Greg Foran says he can see light at the end of the Covid tunnel even as the airline projects more significant losses to come.
Commenting after Air New Zealand reported a first half pre-tax operating loss of $185m, Foran said there was cause for more cautious optimism.
“It feels like getting as many people vaccinated as we can means there is absolutely the end in sight, while appreciating that we may have to take these vaccines regularly and you never know at some point there may be another issue that we have to deal with. But I’m confident.”
He wasn’t about to predict when international borders might open again though, saying he doesn’t spend a lot of time being futuristic these days.
“What I can say is we know a lot more today than we knew at the beginning of January, what we knew last November, and what we knew last July.”
Air New Zealand’s first-half result for the six months to December 31 wasn’t pretty but it was expected. In fact, the underlying performance came in better than some analysts predicted.
Jarden, for example, was picking a loss of about $218.5m.
There were also some positives such as increased revenue from the cargo business, domestic passenger capacity holding up at 76 per cent of pre-Covid levels and further improvement of cash burn — Air NZ is guiding toward $45-55m per month in the second half.
The current liquidity position is also better than Jarden expected with the airline reporting some $720m of available funds, including $550m still remaining from the Government’s $900m loan facility.
But it still requires a significant recapitalisation — something Foran reiterated would be completed by the end of June.
The Government has confirmed it will retain it’s 52 per cent stake in the national carrier by participating in the capital raise, estimated to be as much as $1.5 billion.
“We are deep in discussions at the moment. We need to get through those discussions and then, of course, it’s dependent on Cabinet [sign off] . . . and if all those boxes get ticked then before 30 June we will have a new capital structure in place for the business,” Foran said. “We are working hard to do that.”
Asked about those discussions, Foran wouldn’t be drawn on details.
“We’re having a look at all kinds of scenarios for the business that help in determining exactly what we need and when but as you can imagine that transaction is still very much in discussion,” he said.
The Crown loan “has allowed us to operate and it’s also given us time to understand more about what is going to transpire and how long it’s going to go on for so I think it’s worked out reasonably well for the business.”
In its results presentation Air New Zealand said it’s cash burn averaged about $79m per month from September 2020 through January 2021 — compared to an average cash burn of $175m per month in the fourth quarter of the 2020 financial year.
It is now estimating average monthly cash burn for the remaining five months of the financial year of between $45m and $55m while international travel restrictions remain, assuming no further local lockdowns or social distancing requirements.
“This reflects lower expected refunds and redundancies compared to the first half of the financial year,” Air NZ said.
Commenting on the outlook, Foran said there was still a large degree of uncertainty surrounding the lifting of travel restrictions and the subsequent level of demand so the company was not providing 2021 earnings guidance at this time.
“Despite strong domestic and cargo performance, the scenarios we are currently modelling suggest we will make a significant loss in 2021.”
A Reuters poll of analysts puts the full-year loss estimate in a range between $294m to $493m with a consensus at $413m.
Foran told the Herald there were no plans to take further costs out of the business, which had already shed about a third of its pre-covid workforce.
“We continue to look at all costs in the business. That could be property costs, supply chain costs and where it makes sense we will make decisions that we think are right for the long term position of the business.”