Air New Zealand has now drawn down $760 mln in borrowings from the Government as it continues to burn cash

Embattled national airline Air New Zealand is now forecast a pre-tax loss for the full year to June 2022 of over $800 million, while it has to date used $760 million of a borrowing facility provided by the Government as it continues to be ravaged by the effects of the pandemic.

A projected loss of this magnitude is bigger than analysts were expecting.

The airline is still planning to hold a capital raising, either next month or soon after. Analysts have calculated that Air New Zealand will need to raise more than $1 billion.

The capital raising has previously been delayed, but the Government, which owns over half of Air New Zealand  (via the taxpayer), has said it will support the capital raising.

Recently the airline entered into a reworked financial support package with the Government, which increases the available overall support to $2 billion from $1.5 billion.

Under the terms of that reworked package the airline will now be able to issue up to $1 billion of redeemable shares to the Government - so, making a total package of $2 billion available. But crucially, half of the money potentially advanced by the Crown is now equity, rather than debt.

In reporting a half-year (to December 31, 2021) loss before tax of $376 million ($105 million loss in the 2020 half-year) on Thursday, the airline said the result reflects the substantial impact the Covid-19 pandemic continues to have on the business.

Continued restrictions on international travel, the national lockdown which commenced in August 2021 and the extended period of travel restrictions for the Auckland region saw the airline’s operating revenue decline 9% to $1.1 billion in the period. Passenger flying was down 26% from the corresponding period in financial year 2021 and was down 84% compared with pre-Covid levels.

In addition fuel costs increased 14% to $174 million for the half year, with the increasing cost of fuel expected to impact the second half.

Chief executive Greg Foran said limited international travel on top of local lockdowns in the first half of the financial year had "a huge impact" on the interim result.

"The airline has typically derived two-thirds of its revenue from its international passenger network and much of that was effectively grounded for the majority of the first half," he said.

Air New Zealand chair Therese Walsh said while there was "well founded" optimism for the future the 2022 financial year is the most difficult one yet for the airline.

"It would be easy to think the first year of the pandemic had the biggest impact on Air New Zealand’s finances. However, only the final quarter of the 2020 financial year was impacted, and in the 2021 financial year the airline was able to access relief support from the Government through various subsidies, PAYE deferrals and cargo support schemes. The domestic network largely kept flying across the 2021 financial year and the trans-Tasman and Cook Islands bubbles gave a real boost to the second half of 2021.

"The 2022 financial year has and will continue to be much more heavily impacted, both by continued suppressed demand and rising costs," she said.

As of Wednesday February 23, 2022, Air New Zealand had available liquidity of $1.4 billion, consisting of cash of approximately $170 million, $240 million of available funds on the Crown borrowing facility and $1.0 billion of redeemable shares. The total amount drawn on the Crown facility as at the half-year date of December 31, 2021 was $545 million and as at February 23 was $760 million.

The airline said based on the current "demand profile" and noting the last of three PAYE repayments to the Crown of approximately $100 million due in March, the airline expects it will begin issuing redeemable shares to the Government in March 2022.

"The redeemable shares become available, and will be accessed incrementally, once $850 million has been drawn under the Crown facility," the airline said.

Due to the ongoing financial impact from Covid-19, and the restrictions of the Crown facility, dividends remain suspended. Accordingly, there will be no interim dividend for the 2022 financial year.

In  terms of the capital structure and planned capital raising, Air New Zealand said it "continues to actively engage with the Crown" as it assesses its longer-term capital structure and funding needs. 

"Air New Zealand intends to launch an equity capital raise before the end of March 2022 or shortly thereafter, subject to market conditions.

"Given the critical role the company has in New Zealand’s economy and society, the Crown is supportive of this intention and has confirmed its longstanding commitment to maintaining a majority shareholding and, subject to Cabinet being satisfied with the terms of Air New Zealand’s proposed equity capital raise, it would participate in the equity capital raise in order to maintain a majority shareholding in Air New Zealand."