[ad_1]
The lengthy discussions between Air New Zealand and the government about the company’s future capital structure could be a sign that the airline’s majority shareholder is considering taking a larger stake, or possibly full ownership, of the national airline, says an aviation expert.
An industry analyst said the airline indicated in a recent conference call that it was unlikely that there would be an announcement about its capital structure before the election.
Air New Zealand, which last week posted its first loss in 18 years, is in dire need of cash as the coronavirus reduced annual revenue from $ 6 billion to $ 1 billion in financial year 2020 and cash on hand fell from $ 1.1 billion to approximately $ 200 million. .
To help it overcome the pandemic, the government granted two loans in March for a total value of 900 million dollars, of which the airline could draw on interest rates that range between 7% and 9%.
READ MORE:
* Air NZ’s strong domestic recovery could prompt Jetstar to expand into NZ – analyst
* From Walmart Wonderboy to Air New Zealand: How Greg Foran Handled a Catastrophe
* Coronavirus: Governments are urged to adopt new and radical air transport guidelines for the world Covid-19
Air New Zealand CEO Greg Foran said last week that the airline was days away from withdrawing the loan.
The airline was “in deep discussions” with the government about the loan, but Foran did not say whether it was negotiating more favorable terms or a higher loan amount.
Foran said that other debt it could generate would depend on completing the talks with the government.
Lawrence Smith / Stuff
The Government loan is secured by specific aircraft assets owned by Air New Zealand.
The airline’s minister of shareholders, Grant Robertson, said the government recently reaffirmed the Crown’s commitment to maintain its majority stake in Air New Zealand, considering the critical role the company played in New Zealand’s economy and society.
“This is reflected in the Crown line of credit that provides Air New Zealand with liquidity support while the airline works on a permanent solution,” said Robertson.
“Air New Zealand is constructively engaging with the Crown as it continues to assess its capital structure and financing needs.”
Because Air New Zealand is a publicly traded company, Robertson declined to comment further, he said.
When the loans were announced in March, Robertson said it was possible for the debt to be converted to equity at the request of the Crown.
SUPPLIED
Aviation analyst David Mackenzie says the government loan is expensive and not a long-term solution for Air New Zealand.
Aviation adviser David Mackenzie said the fact that Air New Zealand did not go to market to raise capital and instead continued the discussion with the government, could indicate that the government had plans beyond participating in an issue of cash.
“Obviously the loan is not provided as long-term support. Perhaps more of a holding position, while longer-term plans are formulated, ”Mackenzie said.
“It is a reasonable possibility that a significant restructuring is on the radar.”
He said the government might be looking to increase its equity stake beyond its 52 percent stake and might even try to take full ownership.
“In the extreme, it could be considering taking full control.”
Mackenzie said it would be a “NAC 2.0” scenario, a throwback to the days when New Zealand had a state-owned national airline in New Zealand National Airways Corporation, which eventually merged with Air New Zealand in 1978.
Mackenzie, who was part of a group of advisers who dealt with Air New Zealand’s recapitalization when Ansett failed, said the delay in Air New Zealand’s exit to the cash market tended to indicate that alternative planning was underway.
Air New Zealand could be “in limbo” while it awaits the outcome of some kind of government review, it said.
He said it was difficult to guess what the outcome of the government discussions might be.
At interest as high as 9 percent, the government loan to Air New Zealand was expensive, especially compared to the debt that other airlines had been able to borrow below 3 percent, he said.
“If the government is preventing Air New Zealand from going to the capital markets at this stage, granting the government loan on its onerous terms and conditions becomes more understandable.
“It is effectively temporary, to provide essential liquidity for Air New Zealand in its current state. With that loan in place, the airline can postpone any market focus, thus providing a window for any alternative restructuring plan to develop between the company and the government. “
UBS New Zealand head of research Marcus Curly said the airline told analysts it was unlikely that an announcement would be made before the elections about the company’s capital structure.
Analysts were told that the government did not want its participation diluted, he said.
The airline said its cash reserves would normally be between $ 900 million and $ 1.1 billion, but had fallen below $ 200 million.
“Obviously they need to rebuild that liquidity position,” Curly said.
Analysts were told that the airline expected to spend about $ 75 million a month on the national network, he said.
The airline could not run the business long-term with the backing of the government loan, and UBS was of the opinion that the company needed $ 1.2 billion of new capital, Curly said.
“That loan will be repaid and exchanged for new shares in the business.”
Other aviation companies, such as Auckland International Airport, had already raised extra capital by going to market, he said.
“In some respects, Air New Zealand is the only one.”
