Air NZ secures Government support for share sale to bolster finances

Friday, 12 February 2021

Air New Zealand has had to park up many of its planes after international travel dried up due to Covid-19.

The Government has committed to supporting an upcoming Air New Zealand equity capital raise, to maintain its majority shareholding.

Air New Zealand has been hard hit by the Covid-19 pandemic, forced to cut thousands of jobs and park up many of its planes as international tourism ground to a halt.

The national carrier has been reviewing its capital structure and funding needs and confirmed on Friday that it plans to raise additional money by selling shares in the company in the first half of this year. Analysts said the airline may need to raise between $1 billion to $1.5b, although the longer border restrictions are in place, the more likelihood there is that it could seek even more.

The Government, which owns 52 per cent of Air New Zealand, last year extended a $900 million loan to help support the business. The loan can be converted to equity but the Government hasn’t said if that’s on the cards as part of the upcoming equity capital raise.

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The airline is a strategic asset for the Government, given its key role in supporting international tourism and export industries, and the domestic travel network. The Government previously stepped in to support the airline with a $885m bailout and majority shareholding in 2002 following the collapse of its Australian subsidiary Ansett.

“I can confirm the Crown’s longstanding commitment to maintaining a majority shareholding in Air New Zealand given the critical role that the airline has in New Zealand’s economy and society,” Finance Minister Grant Robertson said in a letter sent on Friday to Air New Zealand chairwoman Dame Therese Walsh.

“Subject to Cabinet being satisfied with the terms of the company’s proposed equity capital raise, the Crown would participate in that capital raise in order to maintain a majority shareholding,” he said.

Robertson said the Government’s support was also linked to the airline’s commitment to environmental sustainability, its role as a good employer, and that it operates as a successful, sustainable business.

Air New Zealand hasn’t provided any further details on the size of the planned share sale. Analysts said the company will want to move ahead with the equity raising to give it certainty around its balance sheet, however additional time may give it more certainty around when borders are likely to re-open, giving it visibility around a recovery.

Walsh said she was delighted with the confirmation of support from the Government, and while grateful for the loan provided last year, it was always a temporary measure.

“The ability to raise equity will help set the airline up for recovery from the impacts of Covid-19 and to continue to fulfil its purpose of connecting New Zealanders to each other and New Zealand to the world,” she said.

Investors welcomed the progress.

“It’s an important stepping stone in the recapitalisation of the company,” said Shane Solly, a portfolio manager at Harbour Asset Management. “It’s the start of a rebuild.”

Air New Zealand is expected to report its first-half results on February 25.

A share sale will dilute existing shareholders. The airline’s shares slipped 1.3 per cent to $1.56 in mid-afternoon trading on Friday and have slumped 45 per cent over the past year.