Ansett drags Air NZ to $1.425 billion loss

By Phil Boeyen, ShareChat Business News Editor

Thursday 13th September 2001

Air New Zealand's (NZSE: AIRVA) full year loss has been revealed at $1.425 billion, including a $1.321 billion writedown of its Ansett subsidiary.

The loss to the end of June compares to last year's $600.15 million deficit. Excluding unusual items, the net loss after tax was $173 million, a figure acting chairman Jim Farmer says was in line with market expectations.

Group earnings before interest and tax was a loss of $53.7 million, down $269.1 million on last year.

The factors behind the poor result are now well known - high fuel prices, low exchange rates, maintenance issues at Ansett, and a tough competitive environment across the Tasman.

Mr Farmer says the operating problems of Ansett have been known to the market for many months, and the New Zealand and Australian governments have been informed on a regular basis of the financial position of Air New Zealand and Ansett.

Singapore Airlines refusal last week to take a bigger share of the company at the formerly agreed price of $1.31 per share appears to have been the main catalyst for the company's recent tailspin.

Mr Farmer says that for some months the Air NZ board worked on the recapitalisation of the company so that it could fund the future expected losses of Ansett and re-equip it to make it a strong competitor.

However after Singapore Airlines said it would no longer pay the agreed price, Mr Farmer says it became aware that the two major shareholders would not inject sufficient equity to enable Ansett to re-equip.

"The board then actively sought to sell Ansett to another airline and on the 10th September entered into a memorandum of understanding with Qantas Airways Limited to sell the businesses of the Ansett Group to them.

"On 12th September Qantas advised Air New Zealand that it did not wish to proceed with the acquisition."

The led to Ansett being placed in voluntary administration Wednesday evening and necessitated write-downs of $1.321 billion in the group accounts.

Mr Farmer says as a consequence of the write-downs, total equity in the group has fallen from $1.84 billion to $518 million.

Earlier today the Finance Minister Michael Cullen announced that both Singapore Airlines and Brierley Investments (NZSE: BRY) would each put another $150 million equity into the company, based on an issue price of 67 cents.

This will increase SIA's holding to 34% and BIL's to 37%.

The New Zealand government is also giving the company access, on commercial terms, to up to a credit line of up to $550 million.

The figure is made up of a revolving credit facility of up to $200 million, available to be drawn for normal working capital needs at any time in the next two years and to be repaid within two years.

It also includes the ability to draw a further $350 million at any time over a period of at least five years, and possibly up to seven years.

The government has also agreed to the merger of the A and B shares, subject to shareholder approval.

Looking at operating results, Air NZ says its capacity rose 66% following after moving to full ownership of Ansett, and total operating revenue rose to $7.96 billion, an increase of $4.3 billion over the prior year.

Expenses followed suit, jumping to $8.01 billion, an increase of $4.57 billion on last year.

During the year the Ansett group of operations - including Ansett Australia, Kendell Airlines, Hazelton, SkyWest and Aeropelican - recorded a loss of earnings before interest and tax of $165.4 million.

"This loss was a consequence of the intense competition from two new entrants and Qantas Airways resulting in significant yield declines, coupled with increased fuel and foreign exchange costs. The grounding of Ansett's Boeing 767-200 aircraft twice during the year also affected earnings," the company says.

Domestic yields on the airline's flights 13.8% due to the price competition from new entrants and Qantas, while Ansett International made an Ebit loss of $23 million.

Back in New Zealand the company reports its Air New Zealand international operations posted an Ebit loss of $50.9 million, as high fuel costs and weakening global economic conditions impacted international services.

"The majority of these losses were incurred on trans-Tasman operations. The revenue improvement due to the strength of the US dollar was more than offset by increases in fuel costs and other foreign currency denominated expenditures."

The only bright spot in the company's accounts is - once again - the New Zealand domestic market, where yields rose by 11% and Ebit grew by 25% to $149.3 million.

"This result was credible given the New Zealand domestic market was also affected by high fuel prices and, to a lesser extent, lower exchange rates. The collapse of Qantas New Zealand provided Air New Zealand with both the opportunity and the challenge of providing service for much higher passenger numbers," the company says.

Air NZ says trading conditions remain difficult, with the impact of the US terrorist attacks yet to be fully understood.

The company says it has hedged a significant proportion of its predicted fuel usage for the current financial year, which will afford some protection if fuel prices rise again.

However it adds that travel patterns, for both business and leisure customers, are influenced by global economic conditions, and there is some evidence of a slowdown emerging in world economies with growth in air travel also slowing, and this can also be expected to be affected by the recent terrorist events.

No final dividend has been declared.

Air New Zealand shares began trading again just after 1 pm Thursday when the full-year's result was released and have bounced up on yesterday's closing prices.

Comments from our readers

No comments yet