Our national airline, Air New Zealand, has slumped to a $454 million after-tax loss for the year to June 2020.
And while it is not making any specific forecasts for the year ahead as such, the airline says "each of the scenarios we are currently modelling suggest we will make a loss in 2021".
Air NZ says short-term liquidity as of August 25, 2020 was approximately $1.1 billion, made up of cash and the $900 million standby loan facility from the New Zealand Government.
"Due to the strong cash position pre-Covid-19, swift action taken by management to reduce cash burn and a better than expected return of domestic demand after the initial lockdown was lifted in New Zealand, the airline has not yet utilised the standby loan facility. However, it expects to start drawing on these funds in the coming days," the company says.
It says "cash burn" averaged approximately $175 million per month from April to June, including higher than average refunds, redundancy payments and fuel hedge close out costs, but this reduced to $85 million for July.
"The airline is estimating the go forward average monthly cash burn to be in the range of $65 million to $85 million while international travel restrictions remain and assuming resumption of domestic travel with no social distancing requirements, as well as a continuation of government-supported cargo flights."
Air New Zealand says the Government has recently reaffirmed the Crown’s long-standing commitment to maintaining its majority shareholding in Air New Zealand, "having regard to the unique and critical role the company has in New Zealand’s economy and society".
"This is reflected in the Crown loan facility that provides Air New Zealand with liquidity support whilst the airline works through to a permanent solution. Air New Zealand is engaging constructively with the Crown as it continues to assess its capital structure and funding needs."
The net loss of $454 million (compared with net profit of $276 million a year ago) included a tax credit of $174 million. Air New Zealand said the result (pre-tax) included an $87 million loss before "significant items", while the aforementioned "significant items" comprised $541 million. As per this table.
Air New Zealand chief executive Greg Foran said Covid-19 has highlighted "once again" that the core strength of the airline is its people and their ability to respond to change quickly.
"I am in awe of the dedication, perseverance, and professionalism of Air New Zealanders across the business and never cease to be amazed at the resilience and strength of our people as we work our way through this crisis."
Air New Zealand provided this Financial Summary:
• Operating revenue of $4.8 billion, down 16% on the prior year as a result of travel restrictions due to Covid-19
• Total network capacity decline of 21% compared with the prior year
• Cargo revenue of $449 million, up 15% on the prior year
• Loss before other significant items and taxation of ($87) million
• Loss before taxation of ($628) million
• Board has determined not to declare a final dividend for the 2020 financial year, given current financial pressures
• Short-term liquidity of $1.1 billion at close of business 25 August 2020, (including funds available under the Government standby loan facility which has not yet been utilised)
26 Comments
The world of airtravel has changed radically and probably forever. How it looks from here on in is anyone's guess. But regardless, Air NZ is our national carrier and i do accept that the Government will consider it necessary to keep it a float to help take the NZ brand to the world. I am less enamoured of the way it has been managed to a degree. But regardless I think it is necessary to keep it going.
m86 - that's a tad dyslexic, as in cognitively dissonant.
If air travel has changed 'radically and probably forever', then the paradigm where 'taking the brand to the world' was of importance, has changed 'radically and probably forever' too.
Globalism is receding, debt is unrepayable, the bubble will pop, growth was a temporary state (Malthus was entirely correct). So 'keep going' for what?
I would suggest that this is more about marking time for the time being until we see what the new 'normal' looks like. In other discussions, I have indicated that I cannot see a future without travel. But COVID, has changed the shape of how we travel. I don't see it stopping travel, yet, else why would $millions be spent on vaccines?
Yes there are arguments for denial and others, but no one knows yet what the future looks like. I don't have a crystal ball, do you?
You'd think so, and yet people are snapping up shares at the moment valuing the company at 1.6 billion. Sure there'll be a discount, but the alternative to an equity raise is to run out of equity and go bust, perhaps mid-late 2021. They also won't want to be drawing too much from the Government loan at 9% interest rates.
Yeah well there's no accounting for buyer behaviour. Forsyth and Craigs have a target price of around $1. I agree AIR will be reluctant to drawdown on the loans with their harsh interest rates but it is what it is, and it's unlikely they'll have much choice but to use it. Remember the Govt reserved the right to convert the loans to equity too, so that makes an equity raise complex.
"The airline is estimating the go forward average monthly cash burn to be in the range of $65 million to $85 million . . "
So how certain is that estimate?
The current situation shows the very high risk and how sudden outbreaks of Covid can occur and how quickly we can move to Level 3.
From memory, this current Auckland Level 3 saw something like a 90% reduction in passengers but given the relatively short length of the lock down ANZ is not in a position to lay off staff.
How does one factor in the uncertainty of number, location and extent of further outbreaks on revenue.
If current liquidity at 1100 million includes the 900m Gubmint bailout loan, that means, by applying Advanced Arithmetic, there's only 200m or less in the cashbox. Word from someone who works there is that 8 weeks leave is going the rounds, causing the inevitable booms and busts as that intersects with work pipeline demand and furloughed-employee availability. Not a pretty sight from the inside.
So AirNZ is only sitting on the equivalent of 200 Auckland houses. I'd wager there would be some property tycoons around here who are in better fiscal position than our air carrier. In fact, AirNZ should just invest the 900 million from the govt in NZ real estate until Covid blows over, then resume airline operations. Rental market needs landlords I heard
"there's only 200m or less in the cashbox."
And if there's still 1.12 billion shares outstanding they are worth 18 cents each, not $1.42.
And that's before things get even worse. Basically, they're worthless.
This Government Standby Facility is a farce.
https://www.bloomberg.com/quote/AIR:NZ
It has government backing, heaps of valuable real estate, the principal entry to Paradise, and a vaccine will come. So it can only go up, may be not fly too high for a while. I think overseas interests and hedge funds will take a stake if there is an equity raising. May be $1.20 per share.
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