Airline's credit outlook improves

By Phil Boeyen, ShareChat Business News Editor

Wednesday 23rd January 2002

Air New Zealand's (NZSE: AIR) credit outlook has moved up a notch following the completion of the state-funded $885 million recapitalisation package.

Ratings agency Standard & Poor's says Air NZ's B- long-term and C short-term ratings have been placed on CreditWatch with positive implications from that of developing implications, where they were placed after last year's $1.425 billion loss was announced.

S&P says the new rating action comes after the Crown's inject $585 million into the airline in return for new ordinary shares and $300 million in return for new convertible preference shares. The government is also prepared to put in a further $150 million before the end of June next year if the money is needed.

"This recapitalisation and commitment to further support has substantially improved Air NZ's financial structure and flexibility, with its operating lease-adjusted debt to capital falling to about 70% from more than 95% at Sept. 30, 2001," says S&P ratings director, Jeanette Ward.

"This improvement, together with a scaling down of its operations to rebuild its profitability amid depressed industry conditions, following the September 2001 terror attacks, could lead to a modest rating upgrade."

S&P says it will need to meet with Air NZ management and assess its new business strategy before the airline's ratings can be resolved.

The ratings agency will also investigate the airline's financial capacity to withstand a period of severe weakness in its industry and the degree to which the company may need to rely on government support in the short-to-medium term.

Air NZ has announced a number of changes since last year's corporate shakedown, including considerable streamlining of its international schedules, management structure and closing some overseas call centres.

The company is currently looking to appoint a chief executive following the departure last year of Gary Toomey.

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