Air NZ forecasting $1.7b in spending on new planes through to 2024
Cash-strapped Air New Zealand is planning to spend $1.7 billion over the next three years on new aircraft it ordered before the coronavirus pandemic sent the global aviation sector into a tailspin.
The national carrier has been devastated by Covid-19 and New Zealand’s closed borders, with its international business a shadow of what it was pre-Covid.
It slashed routes, let go of thousands of staff, posted its first full year loss in 18 years and grounded some widebody fleets. But the airline is pushing on with plans to renew its fleet and make good on aircraft orders it made before the pandemic.
After posting a $72 million loss for the six months to December 31, Air New Zealand chief executive Greg Foran and departing chief financial officer Jeff McDowall outlined the airline’s aircraft expenditure and delivery timeline to analysts on a conference call.
The airline has 13 new planes forecast to arrive through to the 2024 financial year. Airline lobby group International Air Transport Association (Iata) predicts total global passenger volumes will return to 2019 levels in 2024, at the earliest.
Air New Zealand’s orders over the next three years will include three Boeing 787 Dreamliners, nine Airbus A320neo or A321neo and one turboprop ATR72-600.
Air New Zealand’s aircraft spending in 2021 is around $100m, a fraction of the $800m it spent in 2016.
In the 2022 financial year its investment in aircraft is forecast to jump to $400m before rising again to about $600m in both the 2023 and 2024 financial years.
In 2019 Air New Zealand announced it had eight firm orders for new Boeing 787-10 Dreamliners but negotiated an option to switch them for 787-9s.
The order has a list value of US$2.7b (NZ$3.72b) however, Air New Zealand negotiated a significant discount on current list prices. New 787-9s have a list price of US$292.5m, and the longer 787-10 costs US$338.4m.
The first new 787 will arrive in the 2023 financial year, which could mean it arrives any time from July next year. Around June this year Air New Zealand will need to make a decision whether it delays the other two. Delivery of the five remaining Boeing 787 orders are expected from 2025. Air New Zealand currently has 14 787-9s in its fleet.
The airline will take delivery of three new Airbus A320neo or A321neo in the 2022 financial year, three in the 2023 financial year and three in the 2024 financial year.
In 2017 A320neos had a list price of US$108.4m and A321neos had a list price of US$127m.
Air New Zealand announced in 2018 it was investing in 20 Airbus neo aircraft to replace its A320 fleet that operate Tasman and Pacific Island services and for anticipated domestic network growth. The combined value of the order was $2.8b based on list prices at the time.
The new ATR72-600 will be delivered in the 2022 financial year. Air New Zealand has 27 in operation.
‘‘We have both short-term and long-term levers that we can pull with regards to our fleet should demand return more slowly than anticipated,’’ McDowall said.
The airline had negotiated a number of ‘‘slide rights’’ to push out the delivery of some aircraft due to be delivered from 2024 onwards, he said.
If the rights were exercised and delivery was delayed, it would have the effect of lowering the aircraft spending in earlier financial periods because pre-delivery payments would also shift out, he said.
It had also negotiated ‘‘a significant level’’ of aircraft deferrals across its incoming narrow body and turboprop fleet, he said.
‘‘While some of these deferrals are intra-period, so within the same financial year, they still represent a significant cost benefit for the business while borders remain closed.’’
In the short term it had the option to exit a portion of its 777-300 fleet, most of which is sitting in long-term storage in the US desert. Its 777-200 aircraft are also in long-term storage, but the airline indicated to analysts last year these were unlikely to return to service.
‘‘In the longer-term we have the opportunity to push out the delivery of both the new 787 Dreamliners and the A321neos.’’
It did not have to make these decisions for another six months to nine months, he said. ‘‘At that stage the rollout of the vaccine will be even further progressed, and we may have additional clarity on the timing or borders reopening.’’
Air New Zealand has $170m cash on hand and $550m remaining on a high interest $900m Crown loan. Between now and June it expects to burn cash at a rate of $45m to $55m a month and intends to complete a capital raise before June.