Coronavirus: The Air NZ 777-200ER planes which may never fly again
Thursday, 28 May 2020
Air New Zealand has signalled its fleet of Boeing 777-200ER aircraft may never fly again, resulting in an asset write-down worth hundreds of millions of dollars, an aviation analyst says.
The national carrier this week told shareholders, due to the devastating impact of Covid-19 on international travel, it was grounding its Boeing 777-200 and 777-300 extended range fleet until at least the end of the year.
However, UBS aviation analysts Marcus Curly said Air New Zealand management indicated to analysts during a conference that its ageing 777-200ERs were no longer needed, based on an expectation that the airline would be 30 per cent smaller in two years time and international travel may take even longer than that to recover.
'What they were effectively telling us was that the most likely outcome is that they won't fly the 777-200s again,' Curly said.
**READ MORE:
* Coronavirus: Air New Zealand forges ahead with new business class cabin despite Covid-19 chaos
**
That was reiterated in a Forsyth Barr analyst report on Air New Zealand which said airline management suggested they may undertake 'early termination options' on several leased 777-300ER aircraft and largely write down the book value of its 777-200ER fleet.
In a statement to the NZX on Tuesday Air New Zealand said it expected to book a non-cash impairment charge in relation to some 777 aircraft in the range of $350 million to $450m in the 2020 financial year.
The national carrier has seven 777-300ER with an average age of eight years and eight of the smaller 777-200ER which have an average age of nearly 14 years.
Four of the 777-300ER are owned and three are leased. Of the 777-200ER four are owned and four are leased.
Flight data shows some of Air New Zealand's 777-300ER are still flying with one operating a Los Angeles to Auckland service on Thursday.
Curly said if Air New Zealand was not planning to operate 777s as passenger aircraft then they would be sold.
'Hence probably why they are writing them down by hundreds of millions of dollars because it's probably hard to find a buyer for those aircraft at the moment.'
The aircraft could possibly be sold to an air freight company or turned into scrap and sold for parts, he said.
The airline told analysts the write-downs principally applied to the 777-200ERs but did not say whether it applied to the 777-300ERs as well, he said.
If all the 777s were removed from the fleet the airline's long-haul fleet would be much smaller than the 30 per cent indicated, which made retirement of the entire 777-300ER fleet unlikely, he said.
The 777s had been due for refurbishment, which would have required significant investment, he said.
'You're not selling for a lot of money but the status quo probably wasn't viable anyway.'
An Air New Zealand spokeswoman said it was proposing to send its eight 777-200ER aircraft into long-term storage.
'These were due to be replaced by the new 787s on order, so we may accelerate their planned retirement by a couple of years,' the spokeswoman said.
In May 2019 Air New Zealand announced it had ordered eight new Boeing 787-10 Dreamliners, which have a combined list value of US$2.7 billion (NZ$4.4b).
At this stage there were no plans to seek any changes to that order, the spokeswoman said.
Its seven 777-300ERs would be placed in a mixture of short and long-term storage, she said.
Air New Zealand chief revenue officer Cam Wallace during lockdown said engineers were looking into reconfiguring 777s into cargo dedicated aircraft however, on Thursday an airline spokesman said that had not happened.
The 342-seat 777-300ERs are fitted with 44 seats in business premier, 54 in premium economy and 244 in economy while the 312-seat 777-200s have 26 seats in business premier, 40 in premium economy and 246 in economy.
In June 2004 Air New Zealand first announced it was buying four new Boeing 777-200ER and leasing another four to replace its medium-range Boeing 767-300 fleet.
The cost of the four aircraft and the necessary infrastructure to maintain the fleet of eight was more than $1 billion at the time.
The new aircraft, which began entering the fleet in 2005, were intended to develop new routes, increase frequency on existing routes, and provide an overall increase in passenger and cargo capacity.
In 2007 Air New Zealand said it was buying four 777-300ER aircraft as part of an overhaul of its long-haul fleet that resulted in the phasing out of its Boeing 747s and 767s.
The airline secured purchase rights for the planes in the initial 2004 deal.
The four 777-300ERs had a combined list price of $1.4b but airlines usually negotiate substantial discounts and the actual amount paid by the airline was kept secret.
The 777-300ER were larger, with the ability to carry 40 to 50 more passengers than the eight 777-200ER.
A fifth 777-300ER was added to Air New Zealand's order before the first aircraft arrived in Auckland on December 24, 2010.
It was the first aircraft to carry the company's now well-known skycouches and started flying on the Auckland-Los Angeles route on January 17, 2011.
The 777-300ERs' entry into the airline's fleet in late 2010 and early 2011 was supposed to be at the same time as 10 new Boeing 787-9, however, the $2.4 billion-plus Dreamliner order was delayed by six years due to production and safety issues.
In 2013, ahead of the premiere of the second part of the Hobbit trilogy, The Desolation of Smaug, Air New Zealand unveiled a 54-metre-long image of the dragon on the sides of a Boeing 777-300ER, one of several to be given Lord of the Rings themed livery.