S&P nudges up Air NZ credit rating

By NZPA

Wednesday 19th June 2002

Credit agency Standard and Poor's had raised its long-term corporate credit rating on Air New Zealand, but warns the battered airline will take several years to properly recover.

S&P has raised Air NZ's rating to single-`B' from single-`B' minus, shored up by the Government's decision to take a 82 percent stake.

Air NZ was also removed from "creditwatch," the agency's alert rating, where it was placed in January with positive implications.

The airline's rating outlook is stable, and its short-term rating is unchanged at `C'.

Although the Government's move had stabilised the airline's balance sheet and helped stem its losses, the carrier's debt was still high compared to its cash flows, the agency noted.

It also faced considerable risks as it transformed its domestic operation into a low-fare model, while international markets were still low-yielding.

Key threats included rival Qantas Airways which had increased capacity in the New Zealand market, and the potential threat of Virgin Blue entering Air NZ's domestic and trans-Tasman markets.

Part of Air NZ's recently improved financial performance had been due to favourable but fickle fuel prices and exchange rates, the agency said.

The airline was expected to take several years to recover from its low point, given airline overcapacity and the threat of budget airlines around the world.

"The Government's ownership and support are critical to providing stability to Air NZ's rating given the challenges and risk it faces," said Jeanette Ward, S&P's director of corporate and infrastructure ratings.

Shares in Air NZ closed up 2c to 69c today.

Meanwhile, Air NZ announced today it would expand code sharing arrangements with Star Alliance partner, Lufthansa German Airlines, to beef up its flights between Germany and Hong Kong.

The move means Air NZ flights between Hong Kong and Frankfurt five times a week, increasing to a daily service from October, and three weekly flights between Hong Kong and Munich from mid-July.

"The code sharing arrangement provides an additional gateway for European travellers to New Zealand on Air NZ services via Hong Kong as well as Singapore and Los Angeles," said Air NZ senior vice president of sales, Norm Thompson.

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