Air NZ projects loss, says job cuts necessary

Tuesday, 26 May 2020

Air New Zealand, Air NZ, takes delivery of its first Airbus A321neo.

Air New Zealand says it has not yet drawn down on the $900 million loan that the Government has given it as it grapples with a huge loss in customers due to Covid-19.

The airline says cost cuts including a 30 per cent reduction in its labour force — or 4000 staff — will drive annual savings of $350m to $400m.

Chief financial officer Jeff McDowall said the company's short-term liquidity as of Monday was $640m, which does not include the government loan.

As well as redundancies, the company was cutting its executive team by 30 per cent, and deferring or cancelling almost $700m in expected capital expenditure, including deferring the planned delivery of Airbus A321 Neo aircraft.

* Coronavirus: Air New Zealand forecasting 3750 redundancies minimum over the next year

The airline’s Boeing 777-200ER and 777-300ER fleet had been grounded until at least the end of the year.

McDowall said that as a result of the actions, Air New Zealand expects to reduce its average monthly cash outflows by about $50m to $60m for the 2021 financial year.

Air New Zealand says it is expecting an underlying loss for 2020.

“Like all businesses at this time, we find ourselves facing an environment where revenues will be a small fraction of what we are accustomed to,'' he said.

“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.''

Although the move to Level 2 had been welcome, the airline is preparing to be 30 per cent smaller than pre-Covid-19 levels in two years’ time.

It expects the second half of its financial year to only have half the previous year's capacity and with little revenue coming in under alert levels 3 and 4, the airline is now expecting to report an underlying loss for the 2020 year.

The airline did expect some savings — $21m in payments for the sale of airport slots. But it also expected to pay $140m to $160m in 2020 for ''reorganisation costs''.

As passenger numbers dropped off sharply, the airline has sought to recoup some money with cargo, charter and repatriation flights.

However, there were some other heavy costs to come, such as $350m to $450m in non-cash impairment charges for aircraft.

Another net $85m to $105m would be incurred in hedging, foreign exchange and fuel contract costs.