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Air New Zealand yet to access government loan

written by Sandy Milne | May 26, 2020

Air New Zealand's is deferring deliveries of Airbus A321neo aircraft. (Air New Zealand)
Air New Zealand is deferring deliveries of Airbus A321neo aircraft. (Air New Zealand)

Air New Zealand has yet to tap into its NZ$900 million of government loans, documents submitted to the country’s stock exchange reveal.

Despite benefiting from a recent national shift to Level 2 restrictions, a company statement also outlined that senior management expects the impact of the COVID-19 outbreak to last for several years.

“We are preparing for a scenario in which the airline is still 30 per cent smaller than pre-COVID levels in two years’ time,” said chief financial officer Jeff McDowall.

This comes despite a remarkably quick turnaround in the country’s battle with COVID-19, which has seen domestic routes reopened to recreational travellers.

“We have not yet needed to draw down on the government loan facility, as we continue to use all available levers to reduce our cash burn and right-size the business to reflect the expectation that, for some time, our airline will be smaller than it was pre-COVID-19,” said McDowall.

Air New Zealand stocks have dropped to nearly one-third of their value since January (Source: Google Stocks)

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According to company sources, Air New Zealand went into the crisis on a strong footing. The airline claims to have been “in a strong position with a resilient balance sheet and short-term liquidity of more than $1 billion”.

This pool includes approximately $640 million in company liquidity plus the government loan.

Air New Zealand also announced that it has cut costs over previous months through:

  • Labour reductions of approximately 30 per cent, or 4,000 employees, which is expected to drive annualised savings of $350 to $400 million;
  • Reduction of the executive team by 30 per cent;
  • A 15 per cent reduction in the salary of the chief executive and executive team, together with a 15 per cent reduction in director fees through to December 2020; and
  • Institution of a hiring freeze and voluntary leave options.

As a result of these measures, Air New Zealand has cut down on monthly operating costs by some 50-60 per cent.

“We know that demand for air travel will eventually rebound, so we are cognisant of striking the right balance between removing cost from the business and ensuring the airline is in a strong position to ramp up as demand recovers,” said McDowall.

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