Air New Zealand 2021 Interim Results
Media release
25 February 2021
Air New Zealand positions itself for success
Interim highlights
• Domestic capacity 76 percent of pre-Covid levels, led by robust domestic tourism and the return
of business demand during the first half of the 2021 financial year
• Cargo revenue up 91 percent on the same period last year, supported by the Government’s
International Airfreight Capacity scheme (IAFC)
• Short-term liquidity of just over $700 million as at 23 February 2021, made up of approximately
$170 million cash and $550 million undrawn funds on the Government standby loan facility (the
Crown facility)
• Continued cost discipline has resulted in a significant decline in cash burn to an average of $79
million per month from September 2020 through January 2021. For the remaining five months of
the financial year, average monthly cash burn is expected to be in the range of $45 million to $55
million
• Steps to recapitalise the balance sheet are underway and are intended to be completed by 30
June 2021
• Providing customers with even greater flexibility by extending credit redemption deadline to 30
June 2022 and continuing to waive change fees for customers with international flights
commencing before 30 June 2021
• Focus for the second half of the financial year is on maintaining strong performance in our
Domestic and cargo businesses, cost discipline and operational readiness ahead of border
reopenings
Air New Zealand has today announced a loss before other significant items and taxation of $185 million
1
for
the six-month period ended 31 December 2020, reflecting the considerable impact of the Covid-19 pandemic
on the airline and global aviation industry. This compares to earnings before other significant items and taxation
of $198 million for the same period last year.
Statutory losses before taxation of $104 million include an $81 million gain from other significant items,
compared to a $139 million profit before taxation for the first half of the previous financial year.
The continuation of significant restrictions on international travel to and from New Zealand saw the airline’s
operating revenue decline 59 percent to $1.2 billion in the first six months of the financial year, as network
flying was substantially reduced by 65 percent. This was despite strong Domestic operations and additional
cargo flying supported by the IAFC.
Chief Executive Officer Greg Foran says that the interim results are something the Air New Zealand whānau
should be very proud of given the context of a global pandemic that has virtually suspended international air
travel.
“I could not be more proud of the way our team have gone about operating our airline in the midst of this crisis.
They have dealt with each and every obstacle thrown their way with a huge degree of professionalism and
frankly, we wouldn’t be operating the level of domestic and cargo capacity we are without their extraordinary
efforts.
1
Losses/earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding items which
due to their size or nature warrant separate disclosure to assist with understanding the underlying financial performance of the Group. Earnings before other significant
items and taxation is reported within the Group’s unaudited interim financial statements. See table at the end of this release for a summary of Other Significant Items.
“While we made significant changes to our business and cost base, and did this more quickly than most airlines,
since the outbreak of the pandemic we have still burnt through over $1 billion in our own cash reserves – that’s
just huge. We have been fortunate to receive significant financial assistance from wage subsidies and the
Government’s aviation relief package throughout the first half of the financial year, as well as benefiting from
lower fuel prices, however these benefits are not expected to extend into the second half of the financial year.
“From the start of this crisis we have had to make a lot of incredibly tough calls, especially where our people
are concerned, and that is never something we would do lightly – but it has all been with the sole purpose of
ensuring Air New Zealand’s survival. The fact is, we must remain vigilant and disciplined in our approach to
cost management and cash burn while borders remain closed” notes Mr Foran.
Mr Foran went on to comment that the airline remains optimistic about the future, and, after making both short
and long-term changes to the business to lower the cost base, is well positioned for recovery when demand
returns.
“Although it is clear that Covid-19 will continue to impact the aviation industry for some time to come, we are
thrilled to see such strong results from our domestic and cargo businesses. We are one of the few airlines
globally that has seen this level of passenger recovery and we know that is driven by our core strength on the
domestic market. We know this recovery would not be possible without the continued support of our customers
and I want to thank each and every one of you for your support of our airline.
“For the six months to 31 December 2020, we operated 1,800 flights, moving four million passengers around
the country and saw strong signs of corporate demand recovery as the economy started to ramp up following
the second lockdown in August 2020.
“Air New Zealand is a critical part of the country’s infrastructure, connecting Kiwis within and around New
Zealand and transporting crucial imports and exports.
“The airline’s cargo operations, supported by the IAFC scheme, have also played a vital role in driving New
Zealand’s economic recovery, delivering vital medical supplies and PPE and transporting our precious export
products around New Zealand and the world. As a result of these operations, cargo revenue has increased 91
percent to $373 million for the six-month period.
“Following the most challenging year in the airline’s 80-year history, it has been incredibly satisfying for the
team to see both the domestic and cargo businesses perform so well. In particular, the strong recovery in
domestic travel has been really exciting because it shows that when people have confidence to travel, they
will. With the roll out of the vaccines underway around the world and here in New Zealand, this has positive
implications for our recovery when borders open” Mr Foran says.
Chairman Dame Therese Walsh noted that while the results from the first half of the 2021 financial year are
still significantly subdued, she is optimistic that the changes made to the business over the last year or so have
set the airline up well for when borders reopen and the capital raise is complete.
“Since the initial travel restrictions were introduced in early 2020, Air New Zealand has taken significant actions
to reduce its cost base. While some of these actions have taken time to implement, we are now seeing the
benefits of these efforts flow through into our results. Compared to pre-Covid times, operating costs excluding
fuel in the first half of this financial year declined more than 50 percent, and some of these are expected to be
sustainable cost reductions moving forward.
“This will be pivotal as we enter recovery mode as it means we will not only be highly cost effective, but with
the changes we have made to our fleet, we will also have one of the most modern, efficient fleets in the world.
“The Board and I know that the rapid implementation of these changes would not have been possible if it were
not for the skill and determination of our people. I want to thank our team, who in the face of much adversity,
change and uncertainty has been resolute in their focus on delivering for our customers” Dame Therese says.
Liquidity and cash burn update
As at 23 February 2021, the airline has short-term available liquidity of just over $700 million, consisting of
cash of approximately $170 million and $550 million of undrawn funds on the Crown facility. The total amount
drawn on the Crown facility is $350 million.
Having now taken numerous actions to reduce the airlines cost base, cash burn averaged approximately $79
million per month from September 2020 through January 2021. This compares to an average cash burn of
$175 million per month in the fourth quarter of the 2020 financial year.
The airline is estimating average monthly cash burn for the remaining five months of the financial year to be in
the range of $45 million to $55 million while international travel restrictions remain and assuming continued
operation of the domestic network with no further lockdowns or social distancing requirements, as well as a
continuation of government-supported cargo flights. This reflects lower expected refunds and redundancies
compared to the first half of the financial year. However, the airline does not expect cash burn to remain at
such reduced levels beyond the end of the 2021 financial year, as deferrals in operating and investing cash
flows roll off.
Capital structure update and dividend
Air New Zealand has actively engaged with the Crown as the company has continued to assess its longer-term
capital structure and funding needs. Air New Zealand has recently reconfirmed to the market and the Crown
its intention to complete an equity capital raise before 30 June 2021. Given the critical role the company has
in New Zealand’s economy and society, the Crown has, in that context, confirmed in a letter to the Air New
Zealand Chairman its longstanding commitment to maintaining a majority shareholding in Air New Zealand and
that, subject to Cabinet being satisfied with the terms of Air New Zealand’s proposed equity capital raise, it
would participate in that equity capital raise in order to maintain a majority shareholding in Air New Zealand.
Due to the ongoing financial pressures from Covid-19, and the restrictions of the Crown facility, there will be
no interim dividend for the 2021 financial year.
Outlook for 2021
As there is still a large degree of uncertainty surrounding the lifting of travel restrictions and the subsequent
level of demand, Air New Zealand is not providing 2021 earnings guidance at this time. Despite strong domestic
and cargo performance, the scenarios we are currently modelling suggest we will make a significant loss in
2021.
Other Significant Items
Interim impact
(as reported in the Interim
Financial Results)
Foreign exchange gains on uncovered debt $146 million
Gain on sale from landing slots $21 million
Foreign exchange amounts transferred from the cash flow hedge
reserve where forecast transaction is no longer expected
($6 million)
Aircraft impairment and lease modifications ($39 million)
Reorganisation costs ($41 million)
Total Other Significant Items $81 million
Ends
Issued by Air New Zealand Public Affairs ph +64 21 747 320
---
AIR NEW ZEALAND 2021INTERIM RESULT
1
AIR NEW ZEALAND 2021INTERIM RESULT
2
This presentation contains forward-looking statements. Forward-looking statements often include words
such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “continue” or similar words in connection with
discussions of future operating or financial performance.
The forward-looking statements are based on management's and directors’ current expectations and
assumptions regarding Air New Zealand’s businesses and performance, the economy and other future
conditions, circumstances and results. As with any projection or forecast, forward-looking statements are
inherently susceptible to uncertainty and changes in circumstances. Air New Zealand’s actual results
may vary materially from those expressed or implied in its forward-looking statements.
The Company, its directors, employees and/or shareholders shall have no liability whatsoever to any
person for any loss arising from this presentation or any information supplied in connection with it. The
Company is under no obligation to update this presentation or the information contained in it after it has
been released.
Nothing in this presentation constitutes financial, legal, tax or other advice.
Forward-looking statements
AIR NEW ZEALAND 2021INTERIM RESULT
BUSINESS
UPDATE
Greg Foran
Chief Executive Officer
3
AIR NEW ZEALAND 2021INTERIM RESULT
Covid-19 impact on financial performance undeniable; Domestic
and Cargo operations highlight long-term fundamental strengths
• Reporting a loss before other significant items and taxation of $185million, and a
statutory loss after taxation of $72million
• Strong domestic performance supporting the business as it pivots into recovery mode
−Domestic capacity 76 percent of pre-Covid levels, led by robust domestic tourism
−Air New Zealand remains a crucial piece of infrastructure for New Zealand
−Use of cost efficient A321 NEOs on the domestic network enabling us to offer lower fares
profitably
•Cargo revenue up 91 percent on the prior period -now equates to ~35 percentof our
previous long-haul business
• Short-term liquidity of just over $700 million as at 23 February 2021, which includes
$550 million of undrawn funds on the Crown standby loan facility (‘the Crown facility’)
• The airline intends to complete a capital raise before 30 June 2021
4
AIR NEW ZEALAND 2021INTERIM RESULT
Number of seats flown (YoY monthly change rate, %)
2
2
Sourced from DIIO – represents seats flown since Jan 2020. Does not include cargo-only flights.
Globally, the effects of Covid-19 on demand have been severe,
however the roll out of the vaccine is providing positive momentum
5
•The duration and severity of Covid-19 could not
have been foreseen this time last year
−Over 110 million
1
cases worldwide with many of the
world’s largest countries back in lockdown
−Global capacity still down ~50%, with recovery looking
slow as expected
•Equally unexpected was the speed with which a
highly effective vaccine was created
−Over 200 million
1
doses have been administered
worldwide since the vaccine was rolled out in
December 2020
•IATA views enhanced testing and vaccine roll
out as key to recovery
-100%
-80%
-60%
-40%
-20%
0%
20%
012345678910111213
Decline in seats
Months since crisis started
3
Global seats flownAir NZ Domestic seats flownAir NZ International seats flown
1/3 of Air NZ’s pre-
Covid revenue
1
John Hopkins University of Medicine Coronavirus resource centre, as at 23 Feb 2021.
3
Month 0 represents Jan 2020.
AIR NEW ZEALAND 2021INTERIM RESULT
6
• New Zealand's geography is favourable for air travel
−Large, isolated islands, significant distances between centres
−Few alternative transport options – limited lane highways and few intercity
passenger trains
• Air New Zealand is critical infrastructure for New Zealand
−Market share has increased from 82% pre-Covid to 85% due to exit of LCC
competitor from regional NZ markets and over the lockdown period
−One of the only carriers still bringing critical medical and other supplies into
New Zealand, and carrying our precious cargo exports to the world
• The recovery in our Domestic network has positive implications for
broader recovery when international borders open
−Domestic capacity has been at >70% of pre-Covid levels every month except
Aug 20
1
in 1H 2020, reaching almost 85% in Oct 20
−The strong recovery in domestic travel shows that when people have
confidence to travel, demand will return
LCC Competitor
15%
Air New Zealand
85%
Passenger
market
share
The New Zealand market continues to recover strongly, with
around 4 million passengers travelling domestically in 1H 2021
1
Aug 2020 capacity was reduced as a direct result of
Auckland moving into lockdown.
AIR NEW ZEALAND 2021INTERIM RESULT
Australia
50%
China
98%
USA
58%
France
46%
UK
16%
Germany
14%
7
% represents number of domestic seats flown in Jan 2021 as a % Jan 2020 levels.
The high levels of recovery in Domestic networks globally shows that
demand for air travel remains strong
Brazil
69%
Japan
76%
Mexico
74%
New Zealand
80%
AIR NEW ZEALAND 2021INTERIM RESULT
Cargo performance continues to exceed expectations in 1H 2021,
supported by the IAFC
8
• Overall cargo revenue increased 91% in 1H 2021, excluding
FX, due to:
–Additional cargo flights supported by the Government’s
International Airfreight Capacity scheme (IAFC):
oSecond phase of the scheme awarded in Nov 2020,
providing further supported flights until Apr 2021
oAn average of 55 flights operated per week largely
to Asia, Australia, Pacific Islands and North America
oVital service supporting New Zealand’s global trade
links when few international carriers are flying here
oProviding a critical revenue stream at a time when
international passenger flying is limited
–Austrade cargo flights supported by the Australian
Government
AIR NEW ZEALAND 2021INTERIM RESULT
9
•Set up processes to maintain operational integrity
and ensure wellbeing of staff
•Maintain strong connection with customers
•Laser focussed on costs to reduce cash burn
•Encourage Kiwis to explore NZ, rebuild Domestic
•Support recovery of the economy via cargo
•Complete capital raise by 30 June
•Maintain and strengthen operational agility
Short-term
Medium-term
•Build back a network of profitable flying
•Preserve and protect competitive advantages
•Leverage strong domestic brand presence and
customer loyalty to stimulate travel on Tasman
and Pacific Islandsroutes
•Prioritiseour peopleand our customers
•Invest in digital solutions to put greater control
and flexibility in the customers hands
•Return sustainable level of earnings through the
cycle
•More efficient airline, focussed on optimal network
•Right sized cost base
•Continue to lead and advocate for action on
decarbonisation
•Expand and leverage loyalty programme
•Ancillary revenue opportunities
As we enter recovery mode, we remain focussed on our key short,
medium and long-term priorities
Long-term
AIR NEW ZEALAND 2021INTERIM RESULT
FINANCIAL
REVIEW
Jeff McDowall
Chief Financial Officer
10
AIR NEW ZEALAND 2021INTERIM RESULT
331
327
217
198
(185)
-300
-200
-100
0
100
200
300
400
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Dec
2020
Earnings before other significant items
and taxation
($ million)
11
1H 2021 financial summary
•Operating revenue $1.2 billion, down 59%
•Loss before other significant items and taxation
$185 million
•Loss before taxation $104 million
•Net loss after taxation $72 million
$32m
Taxation
($72m)
Net loss
after taxation
($185m)
Loss before
other significant
items and
taxation
$81m
Other
significant
items
1
($104m)
Loss before
taxation
1
Refer to slide 13 for further details on other significant items.
AIR NEW ZEALAND 2021INTERIM RESULT
Profitability waterfall
Additional commentary
•Labour cost decrease of 42%,
driven by 38% reduced
headcount due to Covid-19,
suspension of incentive pay and
receipt of the Government wage
subsidy
•Maintenance, aircraft operations
and passenger services cost
decreases reflect Covid-19
capacity reductions, receipt of
aviation relief package and lower
third party maintenance work
•Ownership costs reduced driven
by cessation of depreciation on
impaired Boeing 777 aircraft that
are indefinitely grounded, the
exit of several ATR aircraft and
reduced utilisation of capitalised
engine maintenance, partially
offset by new aircraft deliveries
12
1
For further details on fuel cost movement, refer to slide 27.
AIR NEW ZEALAND 2021INTERIM RESULT
13
Other significant items of $81 million were recognised in 1H 2021
1
Other Significant Items impact for the 1H 2021
Foreign exchange gains on uncovered debt$146 million
Non-cash
Gain on sale from landing slots$21 million
Non-cash
Foreign exchange amounts transferred from the
cash flow hedge reserve where the forecast
transaction is no longer expected to occur
($6 million)
Non-cash
Aircraft impairment and lease modifications($39 million)
Non-cash
Reorganisation costs($41 million)
3
Partial cash
Total Other Significant Items$81 million
Non-cash
$70 million
Cash
$11million
2
1
Pleas e refer to slide 29 for more information.
2
Refers to cash paid in the 2021 financial year.
3
Total redundancies paid in 1H 2021 were $105 million.
AIR NEW ZEALAND 2021INTERIM RESULT
14
Costs have declined ~50%on a capacity decline of ~65% due to
continued cost discipline since the outset of the crisis
~65
~30
Q1 2020Q1 2021
(~55%)
Q1 average weekly operating costs (ex fuel)
($ millions)
~70
~35
(~50%)
vs.
capacity
decline of
~65%
vs.
capacity
decline of
~65%
Q2 2020Q2 2021
Q2 average weekly operating costs (ex fuel)
($ millions)
Includes wage
subsidies received
due to the Auckland
lockdown in Aug 20
AIR NEW ZEALAND 2021INTERIM RESULT
15
175
122
69
45-55
Q4 2020
Q1 2021Q2 2021
2H 2021
Estimate
Cash burn over the last six months has reduced in line with our
expectations, bolstered by several one-off tailwinds
Estimated future cash burn assumes:
•Operating domestic network at ~80% pre-Covid, no
social distancing, as well as continued cargo flying
•International travel restrictions remain
•Implemented cost reductions continue, 15-month
PAYE deferral remains through to 30 Sept 2021
•Does not include substantial benefits of subsidies
received in 1H 2021
Risks to cash burn estimates include:
•Flying restrictions orsocial distancing requirements
on Domestic flights
•Discontinuation of government support for
international cargo
•Significant fluctuations in foreign exchange
~70% down
Average monthly cash burn
($ millions)
AIR NEW ZEALAND 2021INTERIM RESULT
•Assessment of our capital structure and funding needs is
almost complete and we intend to complete a capital raise
before 30 Jun 2021
•~$350 million of the Crown facility has been drawn down,
resulting in just over $700 million in cash and short-term
liquidity as at 23 Feb 2021
•We have also managed cash levels at around $150 million to
$200 million to ensure interest costs associated with the
Crown facility are as low as possible
•The New Zealand Government has recently reaffirmed its
longstanding commitment to maintaining a majority
shareholding, including as part of the proposed equity raise
•Due to on-going financial pressures from Covid-19, and the
restrictions of the Crown facility, there will be no interim
dividend for the 2021 financial year
Capital structure and dividend
~$170m
$550m
~$720 million in short-term liquidity
(as at 23 Feb 2021)
Remaining Crown
standby facility
Cash on hand
16
AIR NEW ZEALAND 2021INTERIM RESULT
17
Hedging update
• Current fuel hedging profile based on Domestic and Cargo
operations at a similar level to 1H 2021
• Represents approximately one-third of pre-Covid hedging
levels
• While no significant close out costs associated with hedging
volumes in the first half, cash outflows of $39 million in 1H
2021 related to fuel and
operational FX hedging
• Increased fuel prices in recent weeks partially mitigated by
2H 2021 hedge position; assuming no change to current
network capacity, fuel costs in 2H 2021 expected to exceed
1H 2021 levels
Fuel hedge position
(as at 16 Feb 2021)
Period
Hedged
volume
(in barrels)
Net
compensation
from hedging
(USD)
1
1H 20211,665,000(~$15 million)
2H 20211,355,000~$16 million
1
Net compensation from fuel hedges represents the unrealised gains
and losses on fuel hedges and is in USD.
AIR NEW ZEALAND 2021INTERIM RESULT
18
• Forecast remaining investment of $1.7 billion in
aircraft and associated assets through to 2024
• Negotiated slide rights do not form part of the
capex plan until the right is executed
• New aircraft deliveries provide a useful source of
secured financing in the future
* Includes progress payments on aircraft.
**
Does not reflect five Boeing 787 on order for expected delivery from 2025.
We retain further flexibility within our contracted aircraft capital
expenditure
Actual and forecast aircraft capital expenditure*
Aircraftdelivery schedule (as at 31 December 2020)
Number in
existing fleet
Number
on
order
DeliveryDates (financial year)
2021202220232024
Fleet on order
Boeing 787
143**--12
Airbus A320/A321 NEOs
119-333
ATR72-600
28
1 -1--
0
200
400
600
800
1,000
201620172018201920202021202220232024
$ millions
AIR NEW ZEALAND 2021INTERIM RESULT
19
Current narrowbodyand turboprop delivery dates reflect significant
deferrals negotiated in response to Covid-19
FY21FY22FY23FY24
AIRCRAFT
QTR
1
QTR
2
QTR
3
QTR
4
QTR
1
QTR
2
QTR
3
QTR
4
QTR
1
QTR
2
QTR
3
QTR
4
QTR
1
QTR
2
QTR
3
QTR
4
A321NEO #1
A321NEO #2
A321NEO #3
A321NEO #4
A321NEO #5
ATR72-600 #1
New aircraft arrivals
AIR NEW ZEALAND 2021INTERIM RESULT
20
There are also opportunities to adjust our future widebody fleet
profile in the next 6-9 months
AIRCRAFT
Q3
FY21
Q4
FY21
Q1
FY22
Q2
FY22
FY23FY24FY25FY26
777-300ER
New 787
1
New
A321NEO
1
st
decision
window
1
st
decision
window
Potential to exit portion
of the 777-300ER fleet
Potential to delay portion
of the new 787 order
1
st
decision
window
Potential to delay
portion of NEO order
Aircraft decision timelines
1
Delivery of the first new Boeing 787 Dreamliner is in the 2023 financial year. The right to delay relates to the subsequent aircraft.
AIR NEW ZEALAND 2021INTERIM RESULT
OUTLOOK
Greg Foran
Chief Executive Officer
21
AIR NEW ZEALAND 2021INTERIM RESULT
Our priorities for 2H 2021
22
Protect safety and
wellbeing of staff
and customers
Keep kiwis connected
to each other by
delivering a strong
Domestic schedule
Maintain and
strengthen
operational agility
and flexibility
Develop and
execute on
strategic pillars to
further drive our
recovery
Complete capital
raise to ensure
financial strength
and long-term
flexibility
AIR NEW ZEALAND 2021INTERIM RESULT
23
2021 Outlook
As there is still a large degree of uncertainty surrounding the lifting of
travel restrictions and the subsequent level of demand, Air New Zealand
is not providing 2021 earnings guidance at this time. Despite strong
domestic and cargo performance, the scenarios we are currently
modelling suggest we will make a significant loss in 2021.
AIR NEW ZEALAND 2021INTERIM RESULT
THANK
YOU
24
AIR NEW ZEALAND 2021INTERIM RESULT
SUPPLEMENTARY
INFORMATION
25
AIR NEW ZEALAND 2021INTERIM RESULT
* Reported CASK increased 21.8%.
** Excluding fuel price movement, foreign exchange and third party maintenance.
CASK* movement
26
Additional commentary
• CASK**increased 23.1%
due to:
–Diseconomies of scale and
the change in mix of network
flying towards Domestic due
to Covid-19 schedule
changes and border closures
–A moderate level of cost
being held to ensure
operational readiness for
when borders start to reopen
• RASK and margin per ASK
have also both increased
reflecting the change in
network mix
12.31
10.11
2.34
(0.04)
(0.24)
0.14
7
8
9
10
11
12
13
DEC
2019 CASK
DISECONOMIES
OF SCALE &
NETWORK MIX
THIRD PARTY
MAINTENANCE
FUEL PRICEFOREIGN
EXCHANGE
DEC
2020 CASK
CASK (cents)
AIR NEW ZEALAND 2021INTERIM RESULT
656
(445)
(102)
46
(3)
152
0
100
200
300
400
500
600
700
800
DEC 2019
FUEL COST
VOLUMEUNDERLYING
PRICE
NET HEDGING
IMPACT
FX
MOVEMENTS
DEC 2020
FUEL COST
$ millions
Decrease in
jet fuel
price
US$76 to
US$44
per barrel
Dec 2020
hedge loss
of $68m
vs
Dec 2019
hedge loss
of $22m
$56 million effective
decrease in fuel
price
(9%)
Fuel cost movement
27
AIR NEW ZEALAND 2021INTERIM RESULT
28
Projected aircraft in service and fleet age
* Excludes short-term leases which provided cover for the global Rolls-Royc e engine issues.
1
From 2021 onwards, excludes the Boeing 777-200ER fleet and one leased Boeing 777-300ER that are not expected to be returned to service.
2021202220232024
Boeing 777-300ER7665
Boeing 777-200ER----
Boeing 787-9/787-1014141517
Airbus A32020171513
Airbus A320/A321 NEO11141720
ATR72-60028292929
Bombardier Q30023232323
Total Fleet103103105107
7.4
7.0
7.5
7.1
7.1
6.7
7.1
7.6
7.9
201620172018*2019*20202021202220232024
Aircraft fleet age in years
(seat weighted)
1
HistoricalForecast
AIR NEW ZEALAND 2021INTERIM RESULT
29
Earnings before other significant items and taxation
1
Dec 2020
$M
Dec 2019
$M
(Losses)/Earnings before taxation (per NZ IFRS)
(104)139
Add back other significant items:
Disestablishment of fair value hedges
-46
Foreign exchange gains on uncovered debt
(146)-
Gain on sale from landing slots
(21)-
Foreign exchange amounts transferred from the cash flow hedge
reserve where the forecast transaction is no longer expected to occur
6-
Aircraft impairment and lease modifications
39-
Reorganisation costs
41 13
(Losses)/Earnings before other significant items and
taxation
(185)198
1
(Losses)/Earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (StatutoryEarnings) after excluding items which due to
their size or nature warrant separate disclosure to assist with understanding the underlying financial performance of the Group.Earnings before other significant items and
taxation is reported within the unaudited condensed Group interim financial statements. Further details are contained within Note 4 of the Group’s interim financial statements.
AIR NEW ZEALAND 2021INTERIM RESULT
30
Liquidity and gearing position
$ millions31 Dec 202030 Jun 2020
Gross debt(3,482)(3,701)
Cash, restricted deposits and net open
derivatives
452735
Net debt(3,030)(2,966)
Gross debt/EBITDA7.54.4
Net debt/EBITDA6.53.6
Gearing70.5%69.2%
Total liquidity7641,338
Liquidity (% of 2019 revenue)13.2%23.1%
Moody's ratingBaa2 (investment grade)Baa2 (investment grade)
AIR NEW ZEALAND 2021INTERIM RESULT
* Comparative is 30 June 2020.
Dec 2020
$M
Dec 2019
$M
Movement
$M
Movement
%
Operating revenue 1,2343,015(1,781)(59.1%)
Earnings before other significant items and taxation(185)198
(383)(193.4%)
Earnings before taxation(104)139
(243)(174.8%)
Net (loss)/profit after taxation (72)101
(173)(171.3%)
Operating cash flow (134)534
(668)(125.1%)
Cash position*174438
(264)(60.3%)
Gearing*70.5%69.2%
-(1.3 pts)
Financial overview
31
AIR NEW ZEALAND 2021INTERIM RESULT
Dec 2020Dec 2019Movement*
Passengers carried (‘000s)
4,0039,040(55.7%)
Available seat kilometres (ASKs, millions) –
passenger flights
4,99123,741(79.0%)
Available seat kilometres (ASKs, millions) –
passenger and cargo-only flights
8,22423,741(65.4%)
Revenue passenger kilometres (RPKs, millions)
2,67820,021(86.6%)
Load factor
53.7%84.3%(30.6 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
14.210.830.7%
Passengerrevenue per ASKs, excluding FX
(RASK, cents)
14.210.830.5%
Group performance metrics
32
* Calculation based on numbers before rounding.
AIR NEW ZEALAND 2021INTERIM RESULT
Domestic
Dec 2020Dec 2019Movement*
Passengers carried (‘000s)
3,8685,787(33.1%)
Available seat kilometres (ASKs, millions) –
passenger flights
2,6583,506(24.2%)
Revenue passenger kilometres (RPKs, millions)
2,0322,973(31.7%)
Load factor
76.4%84.8%(8.4 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
21.624.3(11.0%)
Passengerrevenue per ASKs, excluding FX
(RASK, cents)
21.624.3(11.0%)
* Calculation based on numbers before rounding.
33
AIR NEW ZEALAND 2021INTERIM RESULT
34
1
Pacific Islands including Bali and Hawaii.
* Calculation based on numbers before rounding.
Tasman & Pacific Islands
1
Dec 2020Dec 2019Movement*
Passengers carried (‘000s)
892,111(95.8%)
Available seat kilometres (ASKs, millions) –
passenger flights
7257,093(89.8%)
Revenue passenger kilometres (RPKs, millions)
1985,852(96.6%)
Load factor
27.4%82.5%(55.1 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
5.69.7(41.6%)
Passengerrevenue per ASKs, excluding FX
(RASK, cents)
5.69.7(42.2%)
AIR NEW ZEALAND 2021INTERIM RESULT
35
International
Dec 2020Dec 2019Movement*
Passengers carried (‘000s)
46
1,142
(96.0%)
Available seat kilometres (ASKs, millions) –
passenger flights
1,608
13,142
(87.8%)
Revenue passenger kilometres (RPKs, millions)
448
11,196
(96.0%)
Load factor
27.8%
85.2%
(57.4 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
5.8
7.9
(27.2%)
Passengerrevenue per ASKs, excluding FX
(RASK, cents)
5.7
7.9
(27.6%)
* Calculation based on numbers before rounding.
AIR NEW ZEALAND 2021INTERIM RESULT
Available Seat Kilometres (ASKs)Number of seats operated multiplied by the distance flown (capacity)
Cost/ASK (CASK)Operatingexpenses divided by the total ASK for the period
GearingNet Debt / (NetDebt + Equity)
Earnings before interest, tax,
depreciation and amortisation
(EBITDA)
Operating earnings (before depreciation and amortisation, net finance costs, associate earnings, other significant items and
taxation) plus finance income and cash dividends received from associates less foreign exchange gains/losses
Gross DebtInterest-bearing liabilities and lease liabilities
Net Debt
Interest-bearing liabilities, lease liabilities less bank and short-term deposits, net open derivatives held in relation to interest-
bearing liabilities and lease liabilities, and interest-bearing assets
Cash, restricted deposits and net
open derivatives
Bank and short-term deposits, interest-bearing assets and net open derivatives held in relation to interest-bearing liabilities and
lease liabilities
Passenger Load FactorRPKs as a percentage of ASKs
PassengerRevenue/ASK (RASK)Passenger revenuefor the period divided by the total ASK for the period
Revenue Passenger Kilometres
(RPKs)
Number of revenue passengers carried multiplied by the distance flown (demand)
The following non-GAAP measures are not audited: CASK,Gearing, Net Debt, Gross Debt, EBITDA and RASK.Amounts used within the calculations are derived
from the condensed Group interim financial statements where possible. The interim financial statements are subject to review by the Group’s external auditors. The
non-GAAP measures are used by management and the Board of Directors to assess the underlying financial performance of the Group in order to make decisions
around the allocation of resources.
Glossary of key terms
36
AIR NEW ZEALAND 2021INTERIM RESULT
Resources
Contact information
Email: investor@airnz.co.nz
Share registrar: enquiries@linkmarketservices.com
Investor website:www.airnewzealand.co.nz/investor-centre
Monthly traffic updates: www.airnewzealand.co.nz/monthly-operating-data
Corporate governance: www.airnewzealand.co.nz/corporate-governance
Sustainability: https://www.airnewzealand.co.nz/sustainability
Find more information about Air New Zealand
37
AIR NEW ZEALAND 2021INTERIM RESULT
---
INTERIM
FINANCIAL
REPORT
2021
WE ARE ALL
CONNECTED
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
2
IT IS EASY TO REFLECT ON
THE LAST YEAR AND SEE
ONLY THE DAMAGE THAT
COVID-19 HAS DONE TO
OUR AIRLINE AND TO THE
INDUSTRY AS A WHOLE.
While it is true that this is a crisis like
no other, the foundation of Air New
Zealand, who we are, what we do, our
passion for customers and for innovating
to deliver a superior service, remains the
same. If anything, the importance of this
foundation has only been amplified.
Compared to most of our global peers,
we are in a fortunate position. We have
flown every single day since Covid-19
began and have been operating a
significant portion of our pre-Covid
domestic capacity for almost a year
now. In December alone, we released
an additional 16,000 seats across
the network due to stronger than
expected domestic demand. We also
sold over 500,000 seats for under
$100 to further stimulate and drive
this demand. Pleasingly, with the cost
efficient A321 NEO aircraft we have
redeployed from the Tasman to the
Domestic network, we are able to offer
customers these competitive prices
and do so profitably. We are incredibly
grateful to our loyal customers for their
continued support of the airline – the
number of New Zealanders getting out
and exploring their own backyard has
been a delight to see.
WITH INTERNATIONAL
PASSENGER FLIGHTS
SIGNIFICANTLY SCALED BACK,
OUR CARGO TEAM PIVOTED
THE BUSINESS VIRTUALLY
OVERNIGHT TO ENABLE
US TO FLY MORE THAN 50
CARGO FLIGHTS A WEEK
UNDER THE GOVERNMENT’S
INTERNATIONAL AIRFREIGHT
CAPACITY SCHEME (IAFC).
These additional cargo flights have
resulted in a stronger performance
from the cargo business this year
and has provided the airline with vital
cash flow during a time where we have
limited international passenger revenue.
Importantly these flights have also helped
us to repatriate more than 60,000 kiwis’
home since the crisis began. We are proud
to have been able to play such a critical
role in keeping New Zealanders connected
to each other during a time when
international travel is largely non-existent,
and in supporting New Zealand’s economic
recovery by moving key cargo in, out and
around the country. It is times like these
that remind us that Air New Zealand is a key
part of New Zealand’s infrastructure, and
our success is inextricably linked.
As we look ahead, 2021 looks set to
be a year of further recovery. With the
vaccines steadily making their way
across the globe, and our own supplies
here in New Zealand having arrived
recently, we hope to see short-haul
international travel restrictions begin
to lift sometime during the 2021
calendar year. While it is unclear what
the demand picture will look like when
borders reopen, the significant recovery
in our Domestic network suggests to us
that when people feel confident in the
safety of the travel environment, there is
still huge desire to travel.
Although our financial results continue
to be subdued, we are proud of what we
have achieved since the outset of the
pandemic. Not only have we managed
our way through the most significant
Kia ora
koutou katoa
LETTER FROM THE CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
Dame Therese Walsh
Chairman
AIR NEW ZEALAND GROUP
crisis to ever face the airline industry,
but our team have also made important
progress on the key initiatives we
identified during our strategy refresh.
The crisis has given us a unique
opportunity to reset our business – to
look at each and every element of what
we do and the products we offer and
really consider if they deliver value for
our customers and our shareholders.
In particular, we have spent a lot of time
thinking about how we can elevate the
Domestic experience even further. Every
customer on our network is different,
so we have spent the last six months
talking to our customers, understanding
what they value most, and developing
tools to cater to those needs. We also
continued to work on the strategic pillars
we identified as part of our strategy
refresh late last year. While there is
still much work to be done before we
implement some of these exciting
innovations, we are very excited about
the opportunities this presents.
The incredible grit that the Air New
Zealand whānau have shown over the
past 12 months is truly inspiring.
Through their efforts we are positioned
to come out of this crisis strongly, with
our competitive advantages intact.
NO MATTER WHAT AREA
OF THE AIRLINE YOU LOOK
AT, EVERY SINGLE PERSON
IN THIS BUSINESS HAS
FACED EXTRAORDINARY
AND UNIQUE CHALLENGES
SINCE COVID-19 FIRST TOOK
A GRIP ON THE WORLD.
Although we are now much smaller
in number, we are just as fierce in our
commitment to this airline, to New
Zealand, and most importantly to our
customers here at home and around
the world.
For all of the challenges that Covid-19
has presented, it has made us even
more agile, innovative and resilient as
a business. The way in which our team
have gone about running this airline
in the midst of a global pandemic is
admirable. They have dealt with each
and every obstacle thrown their way
with a huge degree of professionalism
and have ensured we stay true to our
purpose of connecting New Zealanders
with each other and the world. We have
also delivered exceptionally high on-time
performance in the last six months,
driven by operational flexibility and
2 LETTER FROM THE
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
6 FINANCIAL COMMENTARY
8 CHANGE IN EARNINGS
9 CONDENSED INTERIM
FINANCIAL STATEMENTS
19 INDEPENDENT AUDITOR'S
REVIEW REPORT
3
CONTENTS
THE INCREDIBLE GRIT
THAT THE AIR NEW ZEALAND
WHĀNAU HAVE SHOWN
OVER THE PAST 12 MONTHS
IS TRULY INSPIRING.
Greg Foran
Chief Executive Officer
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
4
proactive disruption management, which
is an impressive effort. The new normal
we find ourselves in requires great skill
and dexterity to navigate and the reality
is, having now spent the better part
of the last year dealing with a state of
constant change, our team are the
best equipped to drive the airline
towards recovery.
In the meantime, we remain focussed
on maintaining our operational agility
and our ability to quickly respond to
rapidly changing environments. As we
await the opening of a trans-Tasman or
Pacific Islands bubble, we have started
to bring some of our furloughed crew
back – you can be assured that when
borders open, we will be ready.
Financial Results
Air New Zealand delivered a loss before
other significant items and taxation
1
of
$185 million for the six months ended
31 December 2020 compared to
earnings of $198 million in the previous
six-month period. This result illustrates
the continued challenges presented by
the Covid-19 pandemic.
Group operating revenues were
$1.2 billion, which represents a decline
of 59 percent on the prior six-month
period. This reflects limited international
passenger flying and the impact of New
Zealand’s second lockdown in August
2020. This was partially offset by
stronger cargo revenues, which were up
91 percent on the previous six months.
Since the outset of the pandemic,
the airline has meaningfully reduced
operating costs, by making the tough
decisions quickly. While some of those
actions took time to fully implement,
we are now seeing the benefits of
these in our results. Operating costs
are down 58 percent on the prior period
on 65 percent less capacity and some
of these cost reductions are expected
to be sustained moving forward.
These cost reductions have not only
helped reduce cash burn from around
$175 million at the start of the crisis,
to an average of $79 million between
September 2020 and January 2021,
they have also reduced the amount
we have needed to draw down on the
New Zealand Government standby
loan facility (the Crown facility). The
current drawn down balance on the
Crown facility is $350 million, resulting
in short-term liquidity of just over $700
million as at 23 February 2021. This
comprises undrawn amounts under the
Crown facility of $550 million and cash
on hand of approximately $170 million.
Dividend
The Board remains focused on
preserving Air New Zealand’s liquidity
across a range of potential demand
recovery scenarios. While the domestic
and cargo businesses are performing
well, the airline continues to face
significant financial pressures as a
result of Covid-19. As such, and in
accordance with the terms of the
Crown facility, there will be no interim
dividend for the 2021 financial year.
We would like to thank our shareholders
for their continued and unwavering
support. Although Covid-19 is still
very much a part of our current day
to day reality, we are seeing some
optimistic signs as we look ahead to the
remainder of 2021. We are determined
AIR NEW ZEALAND DELIVERED
A LOSS BEFORE OTHER
SIGNIFICANT ITEMS AND
TA X AT I O N
1
OF $185 MILLION
FOR THE SIX MONTHS
ENDED 31 DECEMBER 2020
COMPARED TO EARNINGS
OF $198 MILLION IN THE
PREVIOUS SIX-MONTH
PERIOD. THIS RESULT
ILLUSTRATES THE CONTINUED
CHALLENGES PRESENTED
BY THE COVID-19 PANDEMIC.
LETTER FROM THE CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
(CONTINUED)
1. Refer to the Financial Commentary section on page 6. Losses before taxation were $104 million.
AIR NEW ZEALAND GROUP
5
that Air New Zealand will once again
deliver strong results for all of our
stakeholders in the future.
Capital Structure and Liquidity
Air New Zealand has actively engaged
with the Crown as the company
has continued to assess its longer-
term capital structure and funding
needs. Air New Zealand has recently
reconfirmed to the market and the
Crown its intention to complete a
capital raise before 30 June 2021.
Given the critical role the company
has in New Zealand’s economy and
society, the Crown has, in that context,
confirmed in a letter its longstanding
commitment to maintaining a majority
shareholding in Air New Zealand and
that, subject to Cabinet being satisfied
with the terms of the proposed equity
capital raise, it would participate in
that equity capital raise in order to
maintain a majority shareholding in
Air New Zealand.
Outlook
As there is still a large degree of
uncertainty surrounding the lifting of
travel restrictions and the subsequent
level of demand, Air New Zealand is not
providing 2021 earnings guidance at
this time. Despite strong domestic and
cargo performance, the scenarios we
are currently modelling suggest we will
make a significant loss in 2021.
Ngā mihi
Dame Therese Walsh
Chairman
Greg Foran
Chief Executive Officer
25 February 2021
THIS YEAR WE WELCOMED
LEANNE GERAGHTY AND
NIKKI DINES TO THE EXECUTIVE
TEAM, LEANNE AS OUR
CHIEF CUSTOMER AND SALES
OFFICER AND NIKKI AS OUR
CHIEF PEOPLE OFFICER.
Leanne has a tremendous depth of
industry knowledge from a career in
the aviation and tourism industries that
spans more than 30 years. Leanne is
one of the airline's most experienced
global leaders and is held in the highest
regard by key stakeholders ranging
from trade and Government partners
through to customers and fellow Air New
Zealanders. Her detailed knowledge of
the New Zealand, Australian and Pacific
Islands markets in particular provides the
executive with a crucial skill set for when
international tourism recovery begins.
Nikki is regarded as an outstanding
leader having held a variety of people
related roles with the airline since 2013.
She brings extensive knowledge of both
our operational and corporate functions
and has played a key role in navigating
the airline through the impacts of
Covid-19. She is passionate about
talent attraction and retention, people
development and diversity, and will be
pivotal in helping the airline rebuild
post-Covid.
EXECUTIVE TEAM CHANGES
I WOULD ALSO LIKE TO
TAKE THIS OPPORTUNITY TO
THANK AND FAREWELL OUR
CHIEF FINANCIAL OFFICER
JEFF MCDOWALL.
If you have ever had the pleasure of
meeting Jeff, you will know his genuine
passion for Air New Zealand is second
to none. Without Jeff's leadership over
the past two decades, especially as part
of the Executive team in recent years,
the airline would not have delivered
its long run of commercial success
or grown its international footprint so
successfully. Although he will be with
us for a bit longer yet, I wish Jeff all the
best with his future endeavours.
Our new Chief Financial Officer,
Richard Thompson will be starting at
the end of March, and we are very
excited to welcome him back to the
Air New Zealand whānau.
Greg
Leanne Geraghty
Chief Customer and
Sales Officer
Nikki Dines
Chief People Officer
Jeff McDowall
Chief Financial Officer
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
6
Revenue
Operating revenue for the period
declined to $1.2 billion, a decrease of
59 percent as Covid-19 related border
closures and travel restrictions resulted
in substantially reduced network flying.
There was a nominal impact from
foreign exchange.
Passenger revenue declined by 73
percent to $708 million, reflecting the
continued impact of limited international
travel and inbound international tourists
due to Covid-19. Capacity (Available
Seat Kilometres, ASK) reduced by 79
percent excluding cargo-only flights, due
to the operation of a limited passenger
schedule while borders were shut
across all markets the airline operates
in. Including cargo-only flights, capacity
reduced 65 percent compared to the
same period last year.
Demand (Revenue Passenger
Kilometres, RPK) decreased more than
capacity for the period, resulting in a
load factor of 53.7 percent, a decline
of 30.6 percentage points on the
prior comparative period. Revenue
per Available Seat Kilometre (RASK)
improved 31 percent excluding FX driven
by a change in the mix of network flying.
While total ASKs were down substantially,
Domestic ASKs made up a higher
proportion of total ASKs, increasing
revenue per ASK. Domestic RASK is
typically higher than International RASK
because of the shorter sector distances.
International long-haul capacity declined
88 percent with only 1,800 international
flights operating this half compared to
an average of 14,800 flights in pre-Covid
times. Demand on international long-haul
routes declined 96 percent, with load
factor decreasing 57.4 percentage points
to 27.8 percent. International long-haul
RASK reduced by 27 percent. Excluding
the impact of foreign exchange, long-haul
RASK declined 28 percent.
International short-haul capacity
declined 90 percent as a result of limited
flying across the Tasman and to the
Pacific Islands. Demand on international
short-haul routes declined 97 percent,
with load factors decreasing to 27.4
percent which is down 55.1 percentage
points. International short-haul RASK was
down 42 percent and was only nominally
impacted by foreign exchange.
Domestic capacity decreased 24 percent
despite high levels of leisure demand, partly
due to a second lockdown in New Zealand,
which meant that for a period of more than
40 days, non-essential travel to and from
the country’s largest city was prohibited. In
addition, the lack of international tourists
connecting on to our Domestic network
had a significant impact on both capacity
and demand, as did a slow early build back
of corporate demand. Demand declined
more than capacity at 32 percent, with
load factors decreasing slightly, by 8.4
percentage points to 76 percent. Domestic
RASK declined 11 percent and was not
impacted by foreign exchange.
Cargo revenue was $373 million, an
increase of 91 percent. Excluding the
impact of foreign exchange, cargo
revenue increased by 92 percent.
This was driven by more than 1,400
cargo flights under the New Zealand
Government’s International Airfreight
Capacity scheme (IAFC) which provided
support on international flights for the
movement of imports and exports to
New Zealand at a time when there are
fewer international cargo carriers.
Contract services and other revenue
were $153 million, a decrease of $91
million or 37 percent, driven primarily
by reduced maintenance activity on
contracts for third parties as other global
airlines deal with the impact of Covid-19
on their own operations. Reduced lounge
revenue, and lower customer activity
were partially offset by higher charter
revenue. There was a nominal impact
from foreign exchange.
1. Losses/earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding items
which due to their size or nature warrant separate disclosure to assist with understanding the underlying financial performance of the Group. Earnings before
other significant items and taxation is reported within the condensed Group interim financial statements which was subject to review by the external auditors.
Further details are contained within Note 4 of the condensed Group interim financial statements.
FINANCIAL COMMENTARY
Due to the continued
challenges presented
by Covid-19, Air New
Zealand reported a loss
before other significant
items and taxation
of $185 million
1
for
the six months ended
31 December 2020.
Including the impact
of other significant
items, statutory losses
before taxation were
$104 million.
Expenses
Operating expenditure declined by $1.4
billion or 58 percent, with variable costs
declining substantially as a result of
Covid-19 related capacity reductions.
Costs per ASK (CASK) increased 22
percent, including foreign exchange,
fuel, and maintenance for third party
contracts. This adverse movement
is predominantly a result of reduced
economies of scale associated with the
operation of a less than optimal network
schedule due to Covid-19 related border
and travel restrictions and a shift in
the mix of flying towards domestic.
These diseconomies are also driven by
modest holding costs that the airline has
maintained in order to ensure operational
surety and readiness when borders
reopen and passenger demand returns.
Diseconomies of scale and unfavourable
foreign exchange movements were
partially offset by fuel price declines and
a reduction in maintenance costs for
third parties due to reduced work.
Labour costs were $394 million,
reducing by $287 million or 42 percent.
Foreign exchange had no impact on
labour costs in the period. A 65 percent
decline in total network activity due to
Covid-19 and the resulting 38 percent
reduction in headcount were the largest
drivers of lower labour costs this year,
in addition to the removal of incentive
payments for all staff and receipt of
government wage subsidies during the
period. In addition to this, there was also
a substantial reduction in discretionary
labour spend, such as travel and
entertainment costs, as part of ongoing
cost discipline measures.
Fuel costs were $152 million, declining
by $504 million or 77 percent. Excluding
the impact of foreign exchange, fuel
costs reduced by 76 percent. The decline
in fuel cost was largely driven by a 68
percent reduction in volumes consumed
reflecting lower network capacity, which
resulted in $445 million of savings. The
average fuel price, net of hedging also
fell $56 million, or 8.5 percent, as global
demand for Singapore Jet fuel declined
substantially as a result of Covid-19.
Aircraft operations, passenger services
and maintenance costs were $310 million,
representing a significant decline of $443
million or 59 percent. This was driven by
the reduction in departure activity due
to Covid-19 and the resulting decrease
in landing, meal, lounge and crew trip
costs as well as other variable operating
costs. The reduction in net costs also
incorporated support received under the
Government’s aviation relief package.
Sales and marketing and other expenses
declined by $190 million or 57 percent
reflecting lower commissions, promotional
and customer activity due to a reduction
in services.
Ownership costs decreased by $26
million or 6.7 percent, driven by a
decrease in depreciation reflecting
the impairment of those Boeing 777
aircraft that are indefinitely grounded,
the exit of several ATR aircraft and
reduced utilisation of capitalised engine
maintenance, partially offset by new
aircraft deliveries.
The impact of foreign exchange rate
changes on the revenue and cost base
in the period resulted in an unfavourable
foreign exchange movement of $5 million.
After taking into account a $36 million
unfavourable movement in hedging,
overall foreign exchange had a net
$41 million adverse impact on the Group
result for the period.
Share of Earnings of Associates
Share of earnings of associates has
decreased by $13 million to $10 million
for the period, reflecting a reduction in
both engine volumes being serviced
by the Christchurch engine centre due
to Covid-19 and a change in mix in
the type of work being done towards
lighter maintenance.
Other Significant Items
Other significant items resulted in a
gain of $81 million during the six-month
period. These relate to net foreign
exchange gains on uncovered debt of
$146 million and a gain on sale from
landing slots of $21 million partially
offset by reorganisation costs of $41
million, aircraft impairment and lease
modifications costs of $39 million and
de-designation of hedges as a result of
forecast transactions no longer being
expected to occur of $6 million.
Cash and Financial Position
Cash on hand at 31 December 2020 was
$174 million, a decrease of $264 million
since 30 June 2020. This balance reflects
the continued impact of significantly
reduced customer sales as international
travel remains significantly subdued, as
well as refunds, fixed asset purchases
and debt and lease payments offset by
$310 million in drawings on the $900
million Government Standby loan facility.
The airline has undertaken significant
work to reassess its longer-term capital
structure and funding needs and intends
to complete an equity capital raise before
30 June 2021.
Operating cash flows were a net outflow
of $134 million, reflecting significantly
lower cash earnings, ticket refunds and
redundancy payments.
Net gearing increased 1.3 percentage
points to 70.5 percent compared to 30
June 2020, driven by net losses after
taxation, investment in the airline’s fleet
and redundancy payments, offset by
foreign exchange movements.
No dividend for the 2021 interim
financial period has been declared due
to the continued impact of Covid-19
on the business and the conditions of
the standby loan facility with the New
Zealand Government.
7
AIR NEW ZEALAND GROUP
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
8
December 2019
earnings before
taxation
Passenger capacity
-$ 1,731m
- Capacity decreased by 79 percent (excluding cargo-only flights) due to Covid-19
border closures and travel restrictions impacting the whole network. Including
cargo-only flights capacity reduced by 65 percent
- The Domestic network operated at 76 percent capacity, a decline of 24 percent
compared to the prior year due to changes in New Zealand alert levels during August
and September 2020, minimal inbound international travellers and slow early build of
corporate demand
- International short-haul capacity declined 90 percent and was significantly impacted
by the pandemic with a limited number of services operating due to travel and
border restrictions
- International long-haul capacity decreased by 88 percent due to the suspension
of services as a result of the global pandemic and a small number of passenger
services primarily operated on routes supported by the International Airfreight
Capacity scheme
Passenger RASK
-$138m
- Domestic RASK declined by 11 percent excluding FX and loads declined 8.4
percentage points to 76.4 percent due to changes in New Zealand alert levels
requiring social distancing onboard and ongoing uncertainty (impacting corporate
and leisure demand)
- International short-haul RASK declined by 42 percent excluding FX and loads declined
55.1 percentage points to 27.4 percent
- International long-haul RASK declined by 28 percent excluding FX and loads
decreased 57.4 percentage points to 27.8 percent. Limited passenger services,
primarily for essential travel and repatriations, supplemented cargo services
operating under the International Airfreight Capacity scheme
- Overall Group Revenue per Available Seat Kilometre (RASK) improved by 31 percent
excluding FX as a result of a change in the mix of network flying in the current year.
Loads decreased by 30.6 percentage points to 53.7 percent
Cargo revenue
$179m
- Cargo revenue improved due to the award of cargo-only scheduled flights under the
International Airfreight Capacity scheme
Contract services and
other revenue
-$92m
- Reduced maintenance work for third parties, lounge revenue and customer activity
due to Covid-19 offset by higher charter revenue
Labour
$287m
- Reduced labour costs due to a 38 percent reduction in staffing levels resulting from
Covid-19 capacity reductions, suspension of incentive payments, wage subsidies
and other cost savings initiatives
Fuel
$501m
- The average fuel price declined 8.5 percent compared to the prior year (net of
hedging) resulting in a reduction in costs of $56 million. Consumption decreased
by 68 percent ($445 million) due to the reduction in scheduled flights arising from
international border closures and travel restrictions
Maintenance
$85m
- Decrease in maintenance due to reduction in flying as well as for third parties
Aircraft operations and
passenger services
$359m
- Reduced schedule activity due to the Covid-19 pandemic and receipt of aviation relief
package support
Sales and marketing
and other expenses
$190m
- Reduced commissions, promotional and customer activity due to the reduction in
services arising from Covid-19
Ownership costs
$31m
- Decrease in depreciation reflecting impairment of grounded widebody aircraft and
fleet exits as well as reduced utilisation of capitalised engine maintenance offset by
new aircraft deliveries
Net impact of foreign
exchange movements
-$41m
- Net unfavourable impact of foreign exchange hedging losses and the adverse impact
of currency movements on revenue and costs
Share of earnings of
associates
-$13m
- Decrease in earnings from Christchurch Engine Centre driven by a reduction in engine
volumes and lighter maintenance work being performed due to Covid-19
Other significant items
$140m
- Net foreign exchange gains on uncovered debt and gain on sale of landing slots offset by
reorganisation costs, aircraft impairment and lease modifications and de-designation
of hedges as a result of forecast transactions no longer being expected to occur
December 2020
earnings before
taxation
$139m
CHANGE IN EARNINGS
THE KEY CHANGES IN EARNINGS, AFTER ISOLATING THE IMPACT OF FOREIGN EXCHANGE MOVEMENTS,
ARE SET OUT IN THE TABLE BELOW*:
*The numbers referred to in the Financial Commentary on the previous page have not isolated the
impact of foreign exchange.
-$104m
AIR NEW ZEALAND GROUP
NOTES
6 MONTHS TO
31 DEC 2020
$M
6 MONTHS TO
31 DEC 2019
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
2(b)
708
373
93
60
2,576
195
117
127
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange (losses)/gains
Other expenses
3
2(b)
2(b)
2(b)
1,234
(394)
(152)
(140)
(143)
(27)
(29)
(13)
(114)
3,015
(681)
(656)
(224)
(358)
(171)
(174)
23
(159)
(1,012)(2,400)
Operating Earnings (excluding items below)
Depreciation and amortisation
222
(373)
615
(412)
Earnings Before Finance Costs, Associates, Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)
2(b)
2(a)
(151)
4
(48)
10
203
20
(48)
23
Earnings Before Other Significant Items and Taxation
Other significant items4
(185)
81
198
(59)
Earnings Before Taxation
Taxation credit/(expense)
(104)
32
139
(38)
Net (Loss)/Profit Attributable to Shareholders of Parent Company(72)101
Per Share Information:
Basic and diluted earnings per share (cents)
Net tangible assets per share (cents)
(6.4)
97
9.0
163
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised) Review
of Financial Statements Performed by the Independent Auditor of the Entity, issued by the External Reporting Board. The accompanying notes form part of
these financial statements.
9
STATEMENT OF FINANCIAL PERFORMANCE (unaudited)
FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
10
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
6 MONTHS TO
31 DEC 2020
$M
6 MONTHS TO
31 DEC 2019
$M
Net (Loss)/Profit for the Period
Other Comprehensive Income:
Items that may be reclassified subsequently to profit or loss:
Changes in fair value of cash flow hedges
Transfers to net (loss)/profit from cash flow hedge reserve
Net translation loss on investment in foreign operations
Changes in cost of hedging reserve
Taxation on above reserve movements
(72)
(10)
42
(3)
3
(14)
101
91
(16)
-
4
(22)
Total items that may be reclassified subsequently to profit or loss1857
Total Other Comprehensive Income for the Period, Net of Taxation1857
Total Comprehensive (Loss)/Income for the Period, Attributable to Shareholders
of the Parent Company(54)158
STATEMENT OF COMPREHENSIVE INCOME (unaudited)
FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND GROUP
NOTE
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 2020 2,209 (123) (11) (757) 1,318
Net loss for the period
Other comprehensive income for the period
-
-
-
25
-
(7)
(72)
-
(72)
18
Total Comprehensive Income for the Period- 25(7)(72)(54)
Transactions with Owners:
Equity-settled share-based payments
(net of taxation)
2
-
-
-
2
Total Transactions with Owners 2 - - - 2
Balance as at 31 December 20202(g) 2,211 (98) (18)(829) 1,266
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 2019 2,219 (31)(12) (184) 1,992
Net profit for the period
Other comprehensive income for the period
-
-
-
57
-
-
101
-
101
57
Total Comprehensive Income for the Period- 57-101158
Transactions with Owners:
Equity-settled share-based payments
(net of taxation)
Equity settlements of long-term
incentive obligations
Dividends on Ordinary Shares
2(f)
2(h)
2
(15)
-
-
-
-
-
-
-
-
-
(123)
2
(15)
(123)
Total Transactions with Owners (13) - - (123) (136)
Balance as at 31 December 2019 2,206 26 (12)(206) 2,014
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
11
STATEMENT OF CHANGES IN EQUITY (unaudited)
FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
12
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
31 DEC 2020
$M
30 JUN 2020
$M
Current Assets
Bank and short term deposits
Trade and other receivables
Inventories
Derivative financial assets
Income taxation
Other assets
174
294
101
20
5
125
438
305
106
38
3
119
Total Current Assets7191,009
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Right of use assets
Intangible assets
Investments in other entities
Other assets
2(a)
2(d)
140
3,254
2 ,173
179
137
348
142
3,336
2,357
186
162
351
Total Non-Current Assets6,2316,534
Total Assets6,9507, 5 4 3
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Derivative financial liabilities
Provisions
Other liabilities
2(b)
2(e)
398
687
465
389
84
65
163
322
828
160
353
116
104
219
Total Current Liabilities2,2512,102
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Provisions
Other liabilities
Deferred taxation
2(e)
437
1,114
1,514
242
29
97
491
1,303
1,885
295
32
117
Total Non-Current Liabilities3,4334,123
Total Liabilities5,6846,225
Net Assets1,2661,318
Equity
Share capital
Reserves2(g)
2,211
(945)
2,209
(891)
Total Equity1,2661,318
Dame Therese Walsh, CHAIRMAN Jan Dawson, DEPUTY CHAIRMAN
For and on behalf of the Board, 25 February 2021
STATEMENT OF FINANCIAL POSITION (unaudited)
AS AT 31 DECEMBER 2020
AIR NEW ZEALAND GROUP
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
6 MONTHS TO
31 DEC 2020
$M
6 MONTHS TO
31 DEC 2019
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest paid
Interest received
1,047
(1,138)
(5)
(45)
7
3,072
(2,474)
(39)
(46)
21
Net Cash Flow from Operating Activities(134)534
Cash Flows from Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for resale
Proceeds from sale of landing slots
Distribution from associates
Acquisition of property, plant and equipment, right of use assets and intangibles
Interest-bearing asset payments
Investment in associate
4
2
-
21
(135)
-
(3)
7
42
17
(485)
(58)
(1)
Net Cash Flow from Investing Activities(115)(478)
Cash Flows from Financing Activities
Interest-bearing liabilities drawdowns
Lease liabilities drawdowns
Equity settlements of long-term incentive obligations
Interest-bearing liabilities payments
Lease liabilities payments
Rollover of foreign exchange contracts*
Dividends on Ordinary Shares
2(f)
2(h)
340
-
-
(108)
(173)
( 74)
-
46
193
(15)
(75)
(181)
54
(130)
Net Cash Flow from Financing Activities(15)(108)
Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
(264)
438
(52)
1,055
Cash and Cash Equivalents at the End of the Period1741,003
Reconciliation of Net (Loss)/Profit Attributable to Shareholders to Net Cash Flows
from Operating Activities:
Net (loss)/profit attributable to shareholders
Plus/(less) non-cash items:
Depreciation and amortisation
Loss on disposal of property, plant and equipment, right of use assets and assets
held for resale
Impairment/(impairment reversal) on property, plant and equipment and right of
use assets
Foreign exchange losses on debt, no longer offset by foreign exchange gains on
the hedged item
Foreign exchange gains on uncovered interest-bearing liabilities and lease liabilities
Amounts transferred from the cash flow hedge reserve where the forecast
transaction is no longer expected to occur
Share of earnings of associates
Movements on fuel derivatives
Other non-cash items
4
4
4
4
4
2(a)
(72)
373
6
34
-
(146)
6
(10)
(15)
(6)
101
412
2
(3)
46
-
-
(23)
(2)
3
Net working capital movements:
Assets
Revenue in advance
Liabilities
170
7
(195)
(116)
536
(43)
38
3
(304)(2)
Net Cash Flow from Operating Activities(134)534
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
13
STATEMENT OF CASH FLOWS (unaudited)
FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
14
1. Financial Statements
The financial statements presented are those of the consolidated Air New Zealand Group (the ‘Group’), including Air New Zealand Limited
and its subsidiaries, joint ventures and associates.
The parent company, Air New Zealand Limited, is a profit-oriented entity, domiciled in New Zealand, registered under the Companies
Act 1993 and listed on the New Zealand and Australian Stock Exchanges. The Company is a FMC Reporting Entity under the Financial
Markets Conduct Act 2013 and the Financial Reporting Act 2013.
Air New Zealand prepares its condensed Group interim financial statements (“financial statements”) in accordance with New Zealand
Generally Accepted Accounting Practice (“NZ GAAP”) as it applies to the interim period. NZ GAAP consists of New Zealand equivalents
to International Financial Reporting Standards (“NZ IFRS”) and other applicable financial reporting standards as appropriate to profit-
oriented entities.
These financial statements have not been audited. The financial statements comply with NZ IAS 34: Interim Financial Reporting and IAS
34: Interim Financial Reporting and have been the subject of review by the auditor, pursuant to NZ SRE 2410 (Revised) Review of Financial
Statements Performed by the Independent Auditor of the Entity, issued by the External Reporting Board.
The financial statements should be read in conjunction with the Annual Report for the year ended 30 June 2020.
Significant accounting policies
The accounting policies and computation methods used in the preparation of the financial statements are consistent with those used as
at 30 June 2020 and 31 December 2019.
Impact of Covid-19
The Group has significantly reduced its network capacity as demand declined following border closures and international travel
restrictions arising from the Covid-19 pandemic. In response to the impact, the Group took a number of immediate actions including a
reduction in flight capacity, labour reductions, hiring freeze, capital expenditure deferrals, cost reductions and modifications to various
vendor and supplier agreements. In addition, the Group applied for wage subsidies from the New Zealand government and grants under
an aviation support package which provided relief from passenger based government charges and airways related fees. The Group
applied Covid-19 related tax relief by electing to carry back the 2020 financial year income tax loss and was granted deferral of FBT
and PAYE for the period 1 July 2020 to 30 September 2021. The FBT and PAYE liabilities arising during this period will be settled during
October 2021 and March 2022.
In May 2020 a standby Government loan facility of $900 million was secured to support the future business operations. The facility is
available until 27 May 2022. As at 31 December 2020 the Group had drawn down $310 million of the facility (30 June 2020: Nil).
Capital structure
Given the severity of the impact of Covid-19 on the business, the Board is advanced in reviewing the future capital structure of the Group
with an intention to complete a fully underwritten equity raise prior to 30 June 2021. In conjunction, the Board is considering further debt
funding, which will be reviewed in the context of the Group’s targeted gearing and debt coverage ratios.
The Group’s capital structure is managed in the light of economic conditions, future capital expenditure profiles and the risk
characteristics of the underlying assets. The Group monitors capital on the basis of gearing and debt coverage ratios. The gearing ratios
are calculated as net debt (including an estimate of capitalised aircraft operating leases prior to 1 July 2019) over net debt plus equity.
The Group targets a minimum liquidity level, ensuring long-term commitments are managed with respect to forecast available cash
inflow and managing maturity profiles. The Group responded quickly to preserve liquidity as the pandemic took hold, cancelled the 2020
interim dividend distribution and all non-essential spend and deferred capital expenditure.
Forecast liquidity
Detailed cash flow projections have been developed (refer Note 2(c)) which incorporate the Board’s and Management’s current view of
the anticipated recovery timeframe from the impact of the pandemic and includes an assumption around a planned equity raise and
additional debt financing. Given the uncertainty in predicting such timeframes as to when travel restrictions may be lifted and border
reopenings may occur, the potential for future waves of the pandemic and the severity of the economic impact, the Group is not able to
provide certainty that there may not be more severe downsides than those already considered. Whilst such severe scenarios are not
considered likely, in the event a more material adverse scenario occurs, the Group has considered a number of further actions over and
above what is currently in place.
As a result of the critical role the Group has in New Zealand’s economy and society, the Crown has, in that context, confirmed in a letter
to the Chairman its longstanding commitment to maintaining a majority shareholding in Air New Zealand and that, subject to the Cabinet
being satisfied with the terms of Air New Zealand’s proposed equity capital raise, it would participate in that equity capital raise in order
to maintain a majority shareholding.
Given the announced intention for the completion of an equity raise prior to 30 June 2021, the continued support from the Crown
regarding such plans and the consideration of additional debt funding, the Board has a reasonable expectation that the Group has
access to sufficient liquidity to continue to operate for the foreseeable future and therefore that the adoption of the going concern basis
for the financial statements is appropriate.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
AS AT AND FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND GROUP
2. General Disclosures
Group composition
(a) The Group has a 49% interest in the Christchurch Engine Centre (“CEC”) and a 21% interest in Drylandcarbon One Partnership LLC
which are recognised as investment in associates. The Group’s share of equity accounted earnings from the CEC was $10 million
(31 December 2019: $23 million).
Government grants, subsidies and other related party transactions
(b) During the six months ended 31 December 2020 the Group received Covid-19 related wage subsidies from the New Zealand
government of $51 million and grants under an aviation support package (which provided relief from passenger based government
charges and airways related fees) of $58 million. In addition the Group was awarded a grant to continue supplying international
airfreight services to the New Zealand Government as part of efforts to ensure the supply of critical imports and maintain
economic benefits of high value to New Zealand exports during the Covid-19 pandemic. An amount of $142 million was recognised
in relation to the International Airfreight Capacity scheme during the six months ended 31 December 2020. The grant was awarded
for the period through to 30 April 2021. No amounts were recognised in the six months ended 31 December 2019 in relation to
government grants or subsidies.
The Group undertook during the six months ended 31 December 2020 domestic charters and other services to support quarantine
activity as part of border restriction requirements. The transactions were negotiated on an arm’s length basis.
Financing costs of $12 million were recognised in relation to the Government standby loan facility during the six months ended
31 December 2020 (31 December 2019: Nil).
In accordance with Covid-19 related tax relief the Group deferred FBT and PAYE amounts payable for the period of $156 million
(30 June 2020: Nil).
Impairment of property, plant and equipment and right of use assets
(c) Assets are required to be carried at no more than their recoverable amount either through use or sale of the asset. Due to the rapid
deterioration of worldwide and domestic travel, and the uncertainty surrounding the expected recovery period of global demand as a
result of the Covid-19 pandemic, the Group has undertaken impairment testing to ensure the carrying value of assets are appropriate.
Given the severity of the Covid-19 pandemic on long-haul travel the Group has grounded its Boeing 777 fleets. The Boeing 777-200ER
fleet as well as one leased Boeing 777-300ER aircraft are not expected to return to service in the Air New Zealand fleet and therefore
the assets were tested for impairment separately from the rest of the Group’s assets based on an assessment of their fair value less
costs to sell. The market values were obtained from an external valuer which equated to level 2 on the fair value hierarchy. Key inputs
into the external valuations include economic factors, the age and manufacture type of the aircraft and engines, the maintenance
condition of the aircraft and list prices of manufacturers. As at 31 December 2020 a further impairment expense of $25 million was
recognised in the Statement of Financial Performance in relation to these aircraft (31 December 2019: Nil). An impairment provision
of $363 million was held against these aircraft and associated assets as at 31 December 2020 (30 June 2020: $338 million).
The carrying value of all other assets were tested for impairment as part of the airline network cash generating unit, using a value in
use discounted cash flow model. Cash flow projections were developed for a 10 year period, on the basis of detailed forecasts which
incorporate recovery towards pre-Covid-19 capacity, followed by extrapolation at a growth rate of 1.5% per annum from the 2026
financial year (30 June 2020: 1.5% per annum).
Cash flow projections used in the discounted cash flow models reflect the Board’s and Management’s current view of the anticipated
timing and recovery from the impact of the pandemic. The projections incorporated key inputs and assumptions including the
recovery of passenger demand for domestic and international travel, which is predominantly driven by the removal of border
restrictions. The uncertain nature of the timing of border reopenings requires a judgement of Management and the Board and has
been assumed to progressively commence from the 2021 calendar year, with Short-haul international markets assumed to open
ahead of Long-haul international markets. Cash flow projections also included the Group’s expectations for expected fleet usage,
network operations and investment profile. Capital investments during the projected period reflect actions the Group has taken to
delay or reduce investments in the near-term periods to improve cash flow.
Pre-Covid-19, the Group had for five years consistently reported pre-tax ROIC which exceeded its weighted average cost of capital,
indicating, along with other factors including aircraft market values, that the Group’s cash generating unit was not impaired prior to
the pandemic.
In assessing the cash flow projections, the Board has considered a number of sensitivities. The factors driving the largest sensitivities
within the overall model were terminal values and discount rates, and within the detailed projection period to the 2026 financial year
were RASK, timing of border openings and fuel price. Consideration has been given to historical performance and the previous
Board approved 5 year plans, particularly when assessing the reasonableness of cash flows towards the end of the projected period
and terminal year growth assumptions.
The majority of the enterprise value within the value in use model is derived from the terminal value as opposed to short-term
detailed cash flow projections to the 2026 financial year. As a consequence sensitivities to the timing of border openings are not
expected to result in impairment, given the short-term nature of the potential volatility in cash flows compared to the expectation
that performance will recover to pre-Covid-19 levels over the projection period of 2026 and beyond. Potential short-term variances
in the Group’s cash flow projections, while impacting the measurement of the recoverable amount, does not materially impact the
headroom identified.
The cash flow projections are discounted using a pre-tax rate of 10.2% (30 June 2020: 10.5%) which reflected a market estimate of
the weighted average cost of capital for the Group with sensitivities performed within the range of 9.0% to 11.6% (30 June 2020: 9.3%
to 12.5%). This pre-tax weighted average cost of capital equated to a post tax rate of 8.0% (30 June 2020: 8.25%).
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
AS AT AND FOR THE SIX MONTHS TO 31 DECEMBER 2020
15
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
AS AT AND FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
16
2. General Disclosures (Continued)
The discounted cash flows from the cash generating unit confirmed that there was no impairment to the remaining aircraft as, in
the opinion of the directors, the recoverable value from value in use exceeded the book value of the aircraft, based on the Director’s
current assessment of the Group’s future operations.
Interest-bearing assets
(d) Non-current “Other assets” include interest-bearing assets of $333 million (30 June 2020: $334 million). Interest-bearing assets are
measured at amortised cost, using the effective interest method, less any impairment. The fair value of interest-bearing assets as at
31 December 2020 was $372 million (30 June 2020: $364 million) and are subject to fixed and floating interest rates. Fixed interest
rates in the six months to 31 December 2020 ranged from 0.07% per annum to 3.6% per annum (six months to 31 December 2019:
3.1% per annum to 3.6% per annum).
Interest-bearing liabilities
(e) Interest-bearing liabilities of $1,579 million (30 June 2020: $1,463 million) are recognised initially at fair value and subsequently
measured at amortised cost. The fair value at 31 December 2020 is $1,565 million (30 June 2020: $1,432 million).
Interest-bearing liabilities include unsecured bonds of $50 million (30 June 2020: $50 million), secured borrowings of $1,219
million (30 June 2020: $1,413 million) which are secured over aircraft assets and a secured borrowing facility from the New Zealand
Government of $310 million (30 June 2020: nil) which is secured against specific aircraft assets and a general security interest against
other assets of the Group. Secured borrowings are subject to both fixed and floating interest rates. Fixed interest rates on secured
borrowings were between 1.0% per annum and 7.30% per annum in the six months to 31 December 2020 (six months to 31 December
2019: 1.0% per annum). Unsecured bonds have a fixed interest rate of 4.25% per annum (31 December 2019: 4.25% per annum).
Share capital
(f) During the six months ended 31 December 2019 the Group funded the purchase on-market of 5,456,593 shares for $15 million. The
shares were used to settle obligations under long-term incentive plans. The total cost of the purchase including transaction costs has
been deducted from Share Capital. No purchases were funded for the six months ended 31 December 2020.
Hedge reserves
(g) As at 31 December 2020, $97 million of losses (30 June 2020: $120 million of losses) were held in the cash flow hedge reserve and
$1 million of losses (30 June 2020: $3 million of losses) in the costs of hedging reserve. These reserves are combined within the
Statement of Changes in Equity as “Hedge reserves”.
Dividend
(h) A final dividend in respect of the 2019 financial year of 11.0 cents per Ordinary Share was paid on 18 September 2019. Imputation
credits were attached and supplementary dividends paid to non-resident shareholders.
An interim dividend in respect of the 2020 financial year of 11.0 cents per Ordinary Share was declared on 26 February 2020, however
due to the severe impact of Covid-19 on the Group, and in accordance with conditions precedent in securing the availability of the
standby Government loan facility, the dividend was subsequently cancelled on 20 March 2020.
3. Segmental Information
Air New Zealand operates predominantly in one segment, its primary business being the transportation of passengers and cargo on an
integrated network of scheduled airline services to, from and within New Zealand. Resource allocation decisions across the network are
made to optimise the consolidated Group’s financial result.
Geographical
An analysis of revenue by geographical region of original sale is provided below.
6 MONTHS TO
31 DEC 2020
$M
6 MONTHS TO
31 DEC 2019
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
United Kingdom and Europe
Asia
Americas
981
66
8
82
97
1,870
347
136
270
392
Total Operating Revenue1,2343,015
The principal non-current asset of the Group is the aircraft fleet which is registered in New Zealand and employed across the
worldwide network. Accordingly, there is no reasonable basis for allocating the assets to geographical segments.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
AS AT AND FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND GROUP
4. Other Significant Items
Other significant items are items of revenue or expenditure which due to their size or nature warrant separate disclosure to assist
with the understanding of the underlying financial performance of the Group.
6 MONTHS TO
31 DEC 2020
$M
6 MONTHS TO
31 DEC 2019
$M
Foreign exchange losses on debt and leases, no longer offset by foreign exchange gains on the
hedged item, following:
- disestablishment of fair value hedges
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast
transaction is no longer expected to occur
Foreign exchange gains on uncovered interest-bearing liabilities and lease liabilities
Aircraft impairment and lease modifications
Reorganisation costs
Gain on sale of landing slots
-
(6)
146
(39)
(41)
21
(46)
-
-
-
(13)
-
81(59)
Foreign exchange losses on debt and leases, no longer offset by foreign exchange gains on the hedged item
Disestablishment of fair value hedges
In September 2019, the International Financial Reporting Interpretations Committee (“IFRIC”) published an agenda decision in
respect of a “Fair Value Hedge of Foreign Currency Risk on Non-Financial Assets”. The interpretation issued by IFRIC of the principles
of IFRS 9 - Financial Instruments no longer permits certain fair value hedges of underlying United States Dollar aircraft values which
were previously undertaken by the Group. The interpretation has been applied retrospectively in the financial statements.
As a result of the reversal of the fair value hedges, $46 million of foreign currency losses arising on translation of the previously
designated debt, was no longer offset by foreign currency gains arising on the hedged item for the six months to 31 December 2019.
In September 2019 the debt was subsequently re-designated in new hedge relationships in accordance with the Group’s financial
risk management policies.
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast transaction is no longer expected to occur
Group policy is to manage risk exposures on foreign currency risk arising in respect of forecast operating cash flows. As a result of
Covid-19 there was a substantial decline in customer demand due to border closures and domestic travel restrictions. The airline
significantly reduced operating capacity, affecting revenues and operating expenditure. A number of foreign currency operating
revenue and expenditure transactions were de-designated. Where the forecast hedged transaction was no longer expected to occur,
the associated accumulated gains or losses were transferred from the cash flow hedge reserve to profit or loss.
Foreign exchange gains on uncovered interest-bearing liabilities and lease liabilities
Group policy is to manage foreign currency exposures arising from foreign currency denominated liabilities. Due to a significant
decline in forecast foreign currency revenue as a result of Covid-19, the Group was required to de-designate revenue hedges in the
prior year which resulted in certain foreign currency debt and lease obligations becoming unhedged. Foreign currency translation
gains/losses arising on these obligations are now recognised in the Statement of Financial Performance.
Aircraft impairment and lease modifications
As a result of Covid-19 the Group significantly reduced its network capacity following border closures and international travel
restrictions. Due to the severe impact that the pandemic had on global demand for international air travel, the Boeing 777-200ER
fleet and one Boeing 777-300ER leased aircraft were grounded for an indefinite period into the future. The aircraft and other
associated assets were assessed for impairment to determine the recoverable amount based on the fair value less costs to sell.
Market values were determined based on asset condition and estimates of market demand. Impairment expenses of $25 million
(31 December 2019: Nil) and losses arising on lease modifications of $5 million (31 December 2019: Nil) were recognised in respect
of these aircraft for the period ended 31 December 2020.
The Group exited from service six ATR72-500 aircraft in February 2020 following a scheduled fleet replacement. The aircraft were
classified as Held for Resale and were carried at the lower of their previous book value at the date of transfer or fair value less costs
to sell. An impairment expense of $9 million was recognised during the period ended 31 December 2020 (31 December 2019: Nil).
Reorganisation costs
Due to the unprecedented impact of Covid-19 on the airline a reorganisation programme was undertaken to realign the cost base.
Since April 2020 approximately 38% of the labour workforce has left the organisation with redundancy costs being recognised in the
year ended 30 June 2020 and six months ended 31 December 2020.
In March 2019, Air New Zealand announced a two-year cost reduction programme. Reorganisation costs, comprising of redundancy
and other related costs, were recognised during the six months to 31 December 2019 in relation to the programme. In addition,
following the announcement in October 2019 of the withdrawal of services on the London-Los Angeles route, a provision for
redundancy costs was recognised in the comparative period in respect of the London based cabin crew, ground staff and sales staff.
Gain on sale of landing slots
The Group entered into an agreement to dispose of its London Heathrow slots following the announced withdrawal from the
London-Los Angeles route. Proceeds from the sale of $42 million were received in December 2019. A gain on sale of $21 million was
recognised during the six months to 31 December 2020.
17
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
FOR THE SIX MONTHS TO 31 DECEMBER 2020
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
AS AT AND FOR THE SIX MONTHS TO 31 DECEMBER 2020
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2021
18
5. Commitments
31 DEC 2020
$M
30 JUN 2020
$M
Capital commitments
Aircraft and engines
Other assets
2,469
28
2,907
21
2,4972,928
In September 2020 the Group exercised its substitution rights to convert one firm order of a Boeing 787-10 aircraft to a Boeing
787-9. The aircraft is scheduled to be delivered in the 2023 financial year.
In October 2020 the Group agreed to defer the delivery of one ATR72-600 aircraft from May 2021 to September 2021. In February
2021 two Airbus A320 NEO aircraft deliveries were deferred from July 2021/August 2021 to August 2021/October 2021 and one
Boeing 787 aircraft deferred from September 2022 to October 2022.
Capital commitments as at reporting date include eight Boeing 787 aircraft (planned delivery from 2023 to 2028 financial years),
seven Airbus A321 NEOs and two Airbus A320 NEOs (delivery from 2022 to 2024 financial years) and one ATR72-600 (delivery in
2022 financial year).
6. Contingent Liabilities
All significant legal disputes involving probable loss that can be reliably estimated have been provided for in the financial statements.
In April 2020, the Employment Court released a judgment involving third parties which is relevant to the treatment of payments
made under short-term incentive schemes in calculating entitlements under the Holidays Act 2003. The judgment has been
appealed by the third party involved. It is expected that the position regarding payments made under the Group’s discretionary
short-term incentive scheme will be clarified when the case is heard before, and determined by, the Court of Appeal. That
decision will not be available for some time. If the Employment Court’s initial reasoning is upheld and that reasoning was
determined to be applicable to the Group’s short-term incentive scheme, then a liability of approximately $25 million would arise
for obligations in respect of the preceding six-year period.
No other significant contingent liability claims are outstanding at balance date.
Outstanding letters of credit and performance bonds total $28 million (30 June 2020: $34 million).
The Group has a partnership agreement with Pratt and Whitney in which it holds a 49% interest in the CEC. By the nature of the
agreement, joint and several liability exists between the two parties. Total liabilities of the CEC are $79 million (30 June 2020:
$70 million).
7. Subsequent Event
Subsequent to balance date work ceased on a third-party engine maintenance contract undertaken by the gas turbines division
for a German customer where the engine was for a naval end user based in the Middle East. An independent investigation has
been commenced at the request of the Board of Directors as to whether any repair work conducted by the gas turbines division
required permits before being exported or otherwise was in contravention of any applicable export laws. The Group may be
subject to fines, penalties or cancellation fees as a result of the repair work.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
AS AT 31 DECEMBER 2020
The Auditor-General is the auditor of
Air New Zealand Limited (“the Company”)
and its subsidiaries (“the Group”). The
Auditor-General has appointed me, Peter
Gulliver, using the staff and resources of
Deloitte Limited, to carry out the review
of the condensed consolidated interim
financial statements (‘interim financial
statements’) of the Group on his behalf.
Conclusion
We have reviewed the interim
financial statements of the Group on
pages 9 to 18, which comprise the
Statement of Financial Position as at
31 December 2020, and the Statement
of Financial Performance, Statement of
Comprehensive Income, Statement of
Changes in Equity and Statement of Cash
Flows for the six months ended on that
date, and condensed notes to the interim
financial statements.
Based on our review, nothing has come
to our attention that causes us to believe
that the interim financial statements of
the Group do not present fairly, in all
material respects, the financial position
of the Group as at 31 December 2020,
and its financial performance and cash
flows for the six months ended on that
date, in accordance with NZ IAS 34
Interim Financial Reporting and IAS 34
Interim Financial Reporting.
Basis for Conclusion
We conducted our review in accordance
with NZ SRE 2410 (Revised) Review of
Financial Statements Performed by the
Independent Auditor of the Entity (‘NZ
SRE 2410 (Revised)’). Our responsibilities
are further described in the Auditor’s
Responsibilities for the Review of the
Interim Financial Statements section of
our report.
We are independent of the Group in
accordance with the Auditor-General’s
ethical requirements relating to the
audit of the annual financial statements,
which incorporate the independence
requirements issued by the New Zealand
Auditing and Assurance Standards
Board, and we have fulfilled our other
ethical responsibilities in accordance
with these requirements.
In addition to this review and the audit
of the Group annual financial statements,
we have carried out engagements
in the areas of other assurance and
non-assurance services. Principals
and employees of our firm deal with
the Group on normal terms within the
ordinary course of trading activities of
the Group. These engagements and
trading activities have not impaired our
independence as auditor of the Group.
Other than these engagements and
trading activities, we have no relationship
with, or interests in, the Group.
Emphasis of Matter – Impact of
Covid-19, Capital Structure and
Forecast Liquidity
Without modifying our conclusion, we
draw attention to Note 1 of the interim
financial statements, which outlines
the Board’s review of the Group’s future
capital structure, given the severity of
the impact of Covid-19 on the business.
The Board intends to complete a fully
underwritten equity capital raise in
conjunction with consideration of further
debt funding.
Of particular importance to the future
capital structure of the Group, is the
confirmation of the Crown’s longstanding
commitment to maintaining a majority
shareholding in the Company and that it
would participate in the proposed equity
capital raise, subject to Cabinet being
satisfied with the terms of the proposal.
Directors’ Responsibilities for the
Interim Financial Statements
The directors are responsible, on behalf
of the Group, for the preparation and fair
presentation of these interim financial
statements in accordance with NZ IAS
34 Interim Financial Reporting and
IAS 34 Interim Financial Reporting and
for such internal control as the Board
of Directors determine is necessary
to enable the preparation and fair
presentation of the interim financial
statements that are free from material
misstatement, whether due to fraud
or error.
The directors are also responsible for
the publication of the interim financial
statements, whether in printed or
electronic form.
Auditor’s Responsibilities for
the Review of the Interim
Financial Statements
Our responsibility is to express a
conclusion on the interim financial
statements based on our review. NZ SRE
2410 (Revised) requires us to conclude
whether anything has come to our
attention that causes us to believe that
the interim financial statements, taken as
a whole, are not prepared, in all material
respects, in accordance with NZ IAS 34
Interim Financial Reporting and IAS 34
Interim Financial Reporting.
A review of the interim financial
statements in accordance with NZ SRE
2410 (Revised) is a limited assurance
engagement. We perform procedures,
primarily consisting of making enquiries,
primarily of persons responsible for
financial and accounting matters, and
applying analytical and other review
procedures. The procedures performed
in a review are substantially less than
those performed in an audit conducted
in accordance with International
Standards on Auditing (New Zealand)
and consequently does not enable us to
obtain assurance that we might identify
in an audit. Accordingly, we do not
express an audit opinion on these interim
financial statements.
Peter Gulliver
Partner
for Deloitte Limited
On behalf of the Auditor-General
25 February 2021
Auckland, New Zealand
19
SHAREHOLDER ENQUIRIES
Shareholder Communication
Air New Zealand’s investor website
www.airnzinvestor.co.nz provides shareholders
with information on monthly operating
statistics, financial results, stock exchange
releases, corporate governance, annual
meetings, investor presentations, important
dates and contact details. Shareholders can
also view webcasts of key events from this site.
Shareholders who would like to receive
electronic news updates can register online
at www.airnzinvestor.co.nz or email Investor
Relations directly on investor@airnz.co.nz
Share Registrar
Link Market Services Limited
Level 11, Deloitte Centre
80 Queen Street, Auckland, 1010, New Zealand
PO Box 91976, Auckland 1142, New Zealand
Phone: (64 9) 375 5998 (New Zealand)
(61) 1300 554 474 (Australia)
Fax: (64 9) 375 5990
Email: enquiries@linkmarketservices.co.nz
Investor Relations
Private Bag 92007
Auckland 1142, New Zealand
Phone: 0800 22 22 18 (New Zealand)
(64 9) 336 2607 (Overseas)
Fax: (64 9) 336 2664
Email: investor@airnz.co.nz
Website: www.airnzinvestor.com
INDEPENDENT AUDITOR’S REVIEW REPORT
TO THE SHAREHOLDERS OF AIR NEW ZEALAND LIMITED
FOR THE SIX MONTHS ENDED 31 DECEMBER 2020
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (continued) (unaudited)
AS AT 31 DECEMBER 2020
Discover the
8
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airnz.co.nz/safety-videos
---
Air New Zealand Limited
Preliminary Half Year Results
25 February 2021
CONTENTS
NZX Appendix 2 Results Announcement, pursuant to NZX Listing Rule 3.5.1
Air New Zealand Limited
NZX Preliminary Interim Report
Amount (000s)
1,238,000
1,238,000
(72,000)
(72,000)
N/A
N/A
N/A
NZ$ AmountReporting Period
0.97
Contact person for this announcement
Unaudited interim financial statements accompany this announcement.
Contact email addressinvestor@airnz.co.nz
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
Refer to media release.
Date of release through MAP25 February 2021
Leila Peters, General Manager Corporate Finance
Authority for this announcement
Name of person authorised to make this
announcement
Jennifer Page, General Counsel and Company
Secretary
Contact phone number
Imputed amount per sec Quoted Equity
Security
Record Date
+64 9 336 2607
Net tangible assets per Quoted Equity
Security
1.63
Dividend Payment Date
Prior Comparative Period
Net loss from continuing operations(171.3%)
Total net loss(171.3%)
Interim Dividend (NZ$)
Previous Reporting Period6 months to 31 December 2019
Percentage change
Revenue from continuing operations(59.2%)
Total Revenue(59.2%)
Currency
No interim dividend will be paid
New Zealand Dollars
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuerAir New Zealand
Reporting Period6 months to 31 December 2020
Amount per Quoted Equity Security
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2020 (referred to in this report as the "current half year")
1 Information prescribed by NZX
(a) A Statement of Financial Performance
Refer to the Interim Financial Statements.
(b) A Statement of Financial Position
Refer to the Interim Financial Statements.
(c) A Statement of Cash Flows
Refer to the Interim Financial Statements.
(e) A Statement of Movements in Equity
Refer to the Interim Financial Statements.
Ordinary Shares97163
(g) Commentary on the results
MeasurementCurrent period
Prior
comparable
period
(i)Basic and diluted earnings per shareNZ cents per share(6.4)9.0
(ii)Returns to shareholders (see also section (d) above)
Final 2019 dividend on Ordinary Shares$NZ'm- 123
Current period
Prior comparable
period
Refer to Results for announcement to the market.
2 The following information, which may be presented in whatever way the Issuer considers is the most clear and helpful to users, e.g.,
combined with the body of the announcement, combined with notes to the financial statements, or set out separately.
(d) Details of individual and total dividends or distributions and dividend or distribution payments, which:
(i) have been declared, and
(ii) relate to the period (in the case of ordinary dividends or ordinary dividends and special dividends declared at the same time) or were
declared within the period (in the case of special dividends).
No interim dividend is recognised in respect of the 2021 financial year or final dividend in relation to the 2020 financial year.
An interim dividend in respect of the 2020 financial year of 11.0 cents per Ordinary Share was declared on 26 February 2020, however due to the severe
impact of Covid-19 on the Group, and in accordance with conditions precedent in securing the availability of the standby Governement loan facility, the
dividend was subsequently cancelled on 20 March 2020.
(f) Net tangible assets per security with the comparative figure for the previous corresponding period
(NZ Cents Per Share)
Page 3
Air New Zealand Limited
NZX Preliminary Interim Report
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2020 (referred to in this report as the "current half year")
(iii) Significant features of operating performance:
(iv) Discussion of trends in performance:
(v) The Issuer's dividend policy
(vi)
(h) Audit of financial statements
Basis of preparation
Accounting policies
Refer to Note 1 of the Interim Financial Statements.
Changes in accounting policies
Audit Review Report
A copy of the review report is attached at the back of the Interim Financial Statements.
Additional information
Not applicable.
This half year report was approved by the Board of Directors on 25 February 2021.
Dame Therese Walsh
Chairman
Refer to the media release.
Refer to the media release.
Refer to Air New Zealand website - https://www.airnewzealand.co.nz/dividend-history
Any other factors which have or are likely to affect the results, including those where the effect could not be quantified:
Refer to the media release.
The annoucement is based on unaudited interim financial statements. The interim financial statements have been the subject of review by the external
auditor, pursuant to NZ SRE 2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity, issued by the External
Reporting Board.
This report is compiled in accordance with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”). NZ GAAP consists of New Zealand
equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable financial reporting standards as appropriate to profit-oriented
entities.
There have not been any accounting policy changes during the period.
Page 4
Air New Zealand Limited
NZX Preliminary Interim Report
=== IR PAGE TRANSCRIPT: 2021 Interim results Analyst Call Transcript ===
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 1 of 20
Start of Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Air New
Zealand 2021 Interim Results Investor Briefing. At this time, all participants are in a listen
only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session, you will need to press star one on your telephone.
Please be advised that today's conference is being recorded. I'd now like to hand the
conference over to your first speaker today, Air New Zealand General Manager of
Corporate Finance, Leila Peters. Thank you. Please go ahead.
Leila Peters: Thank you and good morning everyone. Today's call is being recorded and will
be accessible for future playback on our investor centre website which you can find at
www.airnewzealand.co.nz\investorcentre
Also on the website, you can find our interim result s presentation, financial report, media
release and relevant stock exchange disclosures. Speaking on the call today will be Chief
Executive Officer, Greg Foran, and Chief Financial Officer, Jeff McDowall. I would like to
take a moment to remind you that our comments today will include certain forward looking
statements regarding our future expectations which may differ from actual results.
We ask that you read through the forward looking cautionary statement provided on slide
2 of the presentation. Before moving on, I would like to take a moment to personally
acknowledge and thank Jeff on his last earnings call with Air New Zealand. It has been a
career highlight of mine to work alongside you for the past four years and I know I speak
for the wider team when I say we wish you the best of luck for the future.
With that, I will now hand the call over to Greg.
Greg Foran: Thank you Leila. Kia ora and good morning everyone and thanks for joining us
on today's call. Earlier this morning we released Air New Zealand's financial results for the
first half of the 2021 financial year. Despite strong domestic operations and additional
revenues from the airlines cargo business, both of which I will talk about in more detail
shortly, we reported a loss before other significant it ems and taxation of $185 million and
a statutory loss after taxation of $72 million.
While these results reflect a continuation of the most challenging conditions ever faced by
the airline and indeed the industry as a whole, I could not be more proud of the way in
which the Air New Zealand whanau have responded to the challenge of running our
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 2 of 20
operations in the midst of a global pandemic.
Together, we've kept kiwis connected to each other in a time when international travel is
largely non-existent by delivering a reliable domestic schedule which has been running at
around 76% of pre-COVID capacity across the first half of the financial year.
We've also he lped keep New Zealand's economy turning by continuing to move crucial
medical and trade supplies in and out of the country via our cargo operations which has
driven a 91% increase in cargo revenues, supported by the government's international air
freight capacity scheme.
Constantly changing rules and protocols have made the already complex job of
successfully and safely operating an airline even more difficult. But the operational agility
and flexibility we've learnt over this time is now ingrained in us and I want to thank the
team for their extraordinary efforts.
I know we wouldn't be operating the level of domestic and cargo capacity that we are
without their hard work. Air New Zealand entered this crisis with a resilient balance sheet
and an investment grade credit rating. With the support of the Crown's standby loan
facility and the efforts of our team to meaningfully reduce operating costs, as at 23
February, we have a remaining short term liquidity of just over $700 million. Of which
$550 million relates to undrawn amounts on the Crown facility.
As you may have seen a few weeks ago, the airline recently reconfirmed to both the Crown
and the market its intention to complete a capital raise before 30 June 2021. At that time,
the Crown confirmed its longstanding commitment to maintaining a majority shareholding
in the airline and stated that subject to cabinet being satisfied with the terms of the equity
capital raise, it would participate in such a raise in order to maintain a majority
shareholding.
Although it's been clear for some time that COVID-19 was not going to be a fleeting issue,
I think it's fair to say that no one could have accurately predicted just how long and how
severe COVID-19s grip on the world would be.
With over 110 million cases worldwide, and some of the world's biggest economies, like
the UK, Germany, and France in some form of lockdown, it is clear that the impact of
COVID-19 will take some time to fully dissip ate.
Our view, which we shared with you at the annual results last August was that the
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 3 of 20
recovery would not be quick and it wouldn’t be uniform. You can see from the graph on the
slide that since our first lockdown in March 2020, our domestic network in green has
recovered swiftly and significantly due to New Zealand's strong stance on elimination and
general public sentiment that it is safe to travel around the country.
Ho wever, what you can also see is that our international capacity, depicted in blue, is a
shadow of what it used to be and globally the story is much the same. As a reminder, pre-
COVID, domestic made up about a third of our total pool of passenger revenues and
around 20% of that was driven by inbound tourists travelling domestically.
So you can see that without international passenger flying, there's still a significant gap in
our earnings stream. On the positive side, what has been equally as unexpected is the
speed with which viable highly effective vaccines have been created, manufactured, and
now distributed across the globe.
Over 200 million doses have been administered worldwide and our own supplies here in
New Zealand arrived last week with the first doses also administered to some frontline
workers.
So although a full recovery to pre-COVID levels is certainly not expected imminently, we
are confident that given the success seen in our own domestic network, customer demand
will return. And when it does, Air New Zealand is strongly positioned to succeed.
Compared to most of our global peers, we are in a very fortunate position. Air New
Zealand has spent years, decades even, building up a strong core domestic market and
investing in a schedule that offers the right mix of frequency and depth of service.
It is the very heart of our business and frankly, the only reason we are still here. It still
surprises many people when I tell them that we've flown every single day since COVID-19
began and we've been operating a significant portion of our pre-COVID domestic capacity
for almost a year now.
Excluding August 2020 when Auckland went back into lockdown, our domestic capacity has
been above 70% of pre-COVID times each mont h of the first half of the financial year. We
als o saw load factors in the first half of the year in the high [70 %s] which is im portant for
two reasons. One being that the first half includes a period of time in which Auckland was
in a second lockdown which required the airline to implement the related social distancing
requirements on our flights.
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 4 of 20
The other being that this shows that we aren't just flying empty planes. We are operating
these planes at or around optimal loads. In December we released an additional 16,000
seats across the network due to stronger than expected domestic demand.
We also sold over 500,000 seats for under $100 to further stimulate and drive this
demand. Pleasingly with the cost efficient A321 NEO aircraft we've redeployed from the
Tasman to the domestic network, we're able to offer our customers these competitive
prices and do so profitably.
We are incredibly grateful to our loyal customers for their continued support of the airline.
The recovery in our domestic network gives us cause for optimism for the future,
particularly as the vaccine rolls out.
It is clear from what we've seen here in our own domestic market, that once people feel
safe to travel, they will and that is hugely important for our long term recovery. There is
no road map for how international demand will recover but if you look at how quickly kiwis
returned to travel once New Zealand was COVID free, you can infer that global behaviour
will likely be similar.
We have been pleased to see the significant return in recent months of our corporate
customers. There was much speculation that business travellers would get used to a world
in which Zoom meetings were the norm and would not return to their former ways of
physical meetings.
With corporate bookings at around 75% to 80% of pre-COVID times in recent months, our
experience is that our business travellers still value that human physical conne ction.
Now I won't spend too much time on this slide. Really what the map shows is that several
countries have now returned to a substantial level of flying which is hugely positive from a
long term recovery perspective.
If you think about a similar map that we presented at the annual results, most countries
were operating very little capacity. While our recovery started earlier and stronger than
many of the other jurisdictions, the most important thing we can take from these numbers
is that the desire to travel remains strong worldwide.
Alongside domestic, cargo has been a critical source of revenue for the airline this year.
Cargo flights supported by the government's international airfreight capacity scheme have
seen our team deliver chilled meats, seafood, stone fruits, berries, dairy products, and
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 5 of 20
even live penguins all across the globe.
Critically, they've also enabled us to carry vital medical supplies and PPE into New Zealand
that would not otherwise be able to arrive given few international carriers are flying to New
Zealand at the moment.
These flights have also supported the repatriation of more than 60,000 kiwis which is
fantastic. These additional cargo flights have resulted in a higher contribution from the
cargo business this year and has provided the airline with vital cashflow during a time
when we have limited international passenger revenue.
The current agreement finishes in April. However, we are hopeful that given the success of
the scheme in keeping New Zealand's global trade links alive, that the scheme will be
extended.
With the roll out of the vaccine and enhanced testing methods, 2021 looks set to be a year
of further recovery. Although to what extent, we do not know. What we do know however
is that the foundation of Air New Zealand, who we are, what we do, our passion for
customers and for innovating to deliver a superior service, has not changed and will not
change.
We remain focused on those things that we can control. Supporting and protecting our
people and our customers, maintaining operational flexibility and agility, protecting and
enhancing our domestic and cargo business and maintaining strong cost discipline.
Just before we move onto the financial results, I wanted to take a moment now to thank
and acknowledge Jeff McDowall, our CFO, for the huge contribution he has made to Air
New Zealand over the past 20 years.
I know that many of you on today's call have firsthand experience of Jeff's passion and
depth of knowledge for all things Air New Zealand. And having personally spent a great
deal of time learning about this business from Jeff when I first started. I can only say a
huge thank you for everything that you’ve contributed to this great airline. So thank you
Jeff, and I will now pass the call over to you.
Jeff McDowall: Thank you Greg for those kind words, and good morning to everyone on the
call. It does feel a bit strange that this will be my last results announcement, but I am
delighted that Richard Thomson has been appointed as my successor. I just can't think of
a better person to take on the role.
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 6 of 20
So turning now to some of the key financial numbers for the period. Operating revenues of
$1.2 billion were down 59% on the prior year, as a result of the continuation of significant
restrictions on international travel to and from New Zealand. Despite this strong domestic
operations, along with additional flying within our cargo business, has meant the Airline
has had positive underlying EBITDA since July 2020 and has been operating cash flow
positive since the second quarter of this financial year.
I think that’s really significant, and probably somewhat different to what many of our
global peers are experiencing. To me it shows that the Airline has a strong core business.
After making structural changes to lower the cost base is well -positioned for recovery
when demand returns. I guess I would temper that however by reiterating that although
our domestic network has recovered significantly since the early days of the pandemic,
which is really great to see, it does only represent about one -third of our pre-COVID-19
revenue base. So there still is quite a big gap for us to fill.
Overall for the six-month period to December we are reporting a loss before other
significant items and taxation of $185 million, and a statutory loss before taxation of $104
million. This includes a gain from other significant items of $81 million, which I will cover in
more detail later on in the presentation. Net loss after taxation for period was $72 million.
Turning to our profitability waterfall chart on slide 12. I won't go into each of these, but I
think there are two really clear messages here. First and foremost, you can see that the
huge different profitability is largely a result of the $1.9 billion decline in passenger
revenue. Driven by limited international passenger flying, which was only partially offset
by cargo revenue.
The second thing this chart conveys is the substantial decline across all areas of our cost
base. While you would expect variable costs to decline significantly when a large portion of
the passenger network isn't operating, the fact is that we have also made great progress in
reducing a lot of the most fixed costs of our business, which I'll talk about shortly.
The other thing I want to be very clear on here is that these results have been somewhat
bolstered by lower fuel prices, over $50 million of wage subsidies received in the first
quarter, and almost $60 million in other aviation support receipts that are not expected to
extend into the second half of the financial year. I don’t say that to detract from the result
we have achieved. But I do want to be clear that the second half performance is expected
to differ from the first half.
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This next slide shows our other significant items for the first six months of this financial
year, the large majority of which are non-cash. The largest of these items is foreign
exchange gains on uncovered debt of around $146 million from the strengthening of the
New Zealand dollar against the US dollar. If you recall, this relates to the significant
decline in expected foreign currency revenues due to COVID-19 and the subsequent de-
designation of revenue hedges that had been put in place in the prior year.
Also within other significant items for the half was a gain on sale from Heathrow landing
slots, offset by aircraft impairment and some reorganisation costs.
You would have heard us talk last year about the significant changes we made to our
business and our cost base to respond to the revenue and liquidity challenges presented
by COVID-19 . These actions included labour reductions, some permanent and some
temporary, overhead reductions, deferrals of non-critical OpEx and CapEx spend, as well
as renegotiation of some of our supply contracts. As a result of these actions costs have
declined substantially.
If we look at the first half of this financial year and we break it down into quarters, you can
see that operating costs excluding fuel decreased 55% in the first quarter and 50% in the
second quarter, compared to the equivalent periods last year. This is compared to a
reduction in capacity of 65% for both of those periods. While it looks like our cost
performance worsened in the second quarter, the key difference actually relates to the fact
that we received over $50 million in wage subsidies, which offset some of our costs.
As you can see in the graph on the next slide, we managed to reduce our cash burn from
around $175 million per month in the first quarter of 2020, down to $69 million per month
in the second quarter of the 2021 financial year. If we look at the period from October
through January, which takes out the noise from the extended Auckland lockdown in
August and September, the average monthly cash burn is better at approximately $60
million per month.
This is a huge improvement in the context of our average loan amortisation and lease
costs of approximately $45 million per month. However cash burn performance was also
bolstered by several one-off tailwinds, such as the wage subsidy and the other aviation
relief I mentioned early in the call, together with the deferral of PAYE.
For the remainder of the 2021 financial year we expect the rate of cash burn to reduce
even further to between $45 million and $55 million per month. This reflects refunds and
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redundancy payments, which are expected to be substantially lower than those
experienced in the first half of the financial year. However this lower rate of cash burn is
not expected to extend by 2021 financial year. Cash burn beyond June 2021 will likely
increase due to aircraft-related CapEx payments, as well as the first repayments of
deferred PAYE starting from October 2021.
This range is obviously predicated on several assumptions. Including that our domestic
network continues to operate around the 80% mark, with no further lockdowns and no
social distancing requirements onboard, and that international travel restrictions remain. It
also assumes continued cargo flying under the IAFC scheme and implemented cost
reductions are maintained.
This range also assumes that we return to a business-as-usual level of refunds, which we
have seen over the past few months, and that we do not receive any substantial benefits
from support, such as the aviation relief package which we received in the first half of the
financial year.
We have also outlined the key downside risks to this range on the slide, which are largely
unchanged from the last time we reported. However we have included foreign exchange
flu ctuations as an additional risk.
The Board is nearing completion of its assessment of the Airline's capital structure and
longer-term funding needs and has recently confirmed to the Crown and the market that
we intend to complete a capital raise before 30 June 2021. Over the course of the last six
months we have drawn down $350 million of the Crown's standby loan facility. We have
intentionally drawn only what we need to maintain a prudent level of cash, while ensuring
that we are not incurring more interest costs than absolutely necessary. As a result of this
we have just over $700 million in cash and short-term liquidity remaining at 23 February
2021. Made up of around $170 million in cash, and $550 million of undrawn funds under
the Crown facility.
We know that dividends remain a really crucial matter for our investors, and I can assure
you that we want to return to a profitable network of flying as soon as possible. However
due to the ongoing financial pressures resulting from COVID-19 and the restrictions of the
Crown facility there wil l be no interim dividend for the 2021 financial year.
Turning now to hedging. As a reminder, we executed a significant level of fuel and FX
hedge closeouts towards the end of the last financial year that impacted our cash flow. Our
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hedging profile since then has reduced substantially, reflecting about one-third of our pre-
COVID-19 level of fuel hedging. This consists of volumes related to domestic and cargo
operations in the first half. We have a similar profile for the remainder of the 2021 financial
year. We do not anticipate any significant further closeouts will be required.
As we discussed at our Annual Results announcement in August, our fuel hedging profile
for the first half was expected to drive hedging los ses as those hedges were put in place
prior to March of last year. Overall operating cash outflows in the period relating to fuel to
FX hedging was $39 million.
Looking ahead to the remainder of the financial year. The increases in fuel prices we have
observed, most noticeably since November, will be partially offset by our hedges based on
current market pricing. We continue to see benefits of hedging against potential fuel price
rises and adverse FX movements. Notwithstanding the benefit from our hedge profile, we
do expect fuel costs to increase compared to what we experienced in the first half of the
year.
You can see in the chart on slide 18 the expected phasing of our contracted aircraft capital
expenditures through to 2024, which total approximately $1.7 billion based on an
exchange rate of $0.72. You can see just how hard our fleet team have worked in the last
12 months to really bring down their level of spend in the 2021 financial year to reduce our
cash outflows while passenger revenue is so significantly constrained.
What this graph doesn’t reflect, and what is an important distinction, is that we have
negotiated a number of slide rights that when we have the option to push out the delivery
of some aircraft due to be delivered from 2024 onwards. This isn't reflected in the CapEx
chart shown here, as decision dates for those slide rights are in the future. If these rights
are exercised and delivery is delayed, it would have the effect of lowering the CapEx outlay
in earlier financial periods as well, given any pre-delivery payments would also shift out.
We are however still expecting to receive the first of our new Boeing 787 Dreamliners in
FY23. Aside from the slide rights I mentioned earlier, we also have negotiated a significant
le vel of aircraft deferrals across our incoming narrowbody and turboprop fleet. While some
of these deferrals are intra-period, so within the same financial year, they still represent a
significant cost benefit for the business while borders remain closed.
This slide shows a couple of key points, being that we have both short-term and long-term
levers that we can pull with regards to our fleet should demand return more slowly than
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anticipated. In the short-term we have the option to exit a portion of our 777-300 fleet. In
the longer-term we have the opportunity to push out the delivery of both the new 787
Dreamliners and the A321NEOs.
The great thing about these options is that we do not have to make these decisions for
another six months to nine months. At that stage the rollout of the vaccine will be even
further progressed, and we may have additional clarity on the timing or borders reopening.
I will now pass you back over to Greg who is going to discuss the outlook, and leave you
with some closing remarks.
Greg Foran: Thank Jeff. At the Annual Results last year I said to you all that we had a
difficult road ahead of us. While I think that is still true, the speed with which the vaccine
was created and subsequently produced, alongside the success story we are seeing with
domestic demand, not only on our own network but in other jurisdictions around the world,
has given me optimism for the future of travel demand.
Whenever borders start to open it is clear that when people feel safe to travel they will. If I
think about the number of people wanting to see friends and family overseas, or just
wanting to get out and explore what the world has to offer, it fills me with great confidence
for the recovery of our business and for the industry as a whole.
So while we may be a largely domestic airline with a solid cargo business for a time longer
yet, we remain focused on those things we can control, and those things that we know will
enable us to be strongly positioned to compete and win in the future.
As I look to the remainder or the 2021 financial year we have identified five key priorities.
To protect the safety and wellbeing of our staff and customers, which at the end of the day
is out most fundamental duty. To maintain our core strength on a domestic market,
enabling us to fulfil our purpose of keeping New Zealanders connected. To keep building
agility and dexterity into our operations, so that we are ready to act quickly when borders
reopen. Or to respond to any further challenges we are faced with.
We intend to complete our capital raise process this financial year, enabling the Airline to
have a long-term capital structure and funding plan in place. Finally, we need to deliver on
our strategic priorities so that when demand for air travel returns, and we are confident it
will, we are ready with a service offering and a network that is second-to-none for our
customers.
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Turning now to our outlook. As there is still a large degree of uncertainty surrounding the
lifting of travel restrictions and the subsequent level of demand, Air New Zealand is not
providing 2021 earnings guidance at this time. Despite strong domestic and cargo
performance, the scenarios we are currently modelling suggest we will make a significant
loss in 2021.
So with that, can I say thank you very much for listening. I know you'll have lots of
questions, so, Operator, please open up the line.
Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer
session. If you wish to ask a question, please press star one on your telephone and wait
for your name to be announced. If you wish to cancel your request, please press the
pound or hash key. Once again, it is star one and wait for your name to be announced.
Thank you very much. Once again, it is star one. Our next telephone question comes from
the line of Andy Bowley from Forsyth Barr. Please ask your question, Andy.
Andy Bowley: (Forsyth Barr, Analyst) Thanks, Operator, and good morning, guys. I've got
a couple of questions to kick things off, the first of which is around the cash burn, and
thanks for the commentary around - and congratulations in lowering that cash burn
through the first half . But could you talk to the guidance you're providing for the second
half in a bit more detail and maybe you can tell us what it really implies around particular
items, like lo an amortisation, working capital, CapEx, any lease restructures, et cetera,
and the PAYE comment that you made in the presentation?
Jeff McDowall: Morning, Andy. It's Jeff. Yes. So loan amortisation is a good point. I mean,
if you look at the cash burn guidance that we've provided for the second half of $45 million
to $55 million, the vast bulk of that is loan amortisation and lease costs. The one thing we
wanted to make really clear, I think we've mentioned in the materials, is that it also
reflects the benefit of the PAYE deferral program and that remains until September and
then goes the other way, as we start to repay that for the six months following from
October through March. So those are probably the two key things.
I mean, it does reflect a business that with domestic and cargo operating is operating cash
flow positive. So the bulk then of what you're seeing in the cash burn number is CapEx and
lease and loan amortisation.
Andy Bowley: (Forsyth Barr, Analyst) Can you give us a sense of the magnitude of the
PAYE savings, Jeff, through the second half?
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Jeff McDowall: Yes, so it's roughly - it fluctuates a little bit with - earlier it was a bit higher
with restructuring costs, but it's in the [20 % to 25%] a month range.
Leila Peters: That will be reflected in operating cash flows, Andy.
Andy Bowley: (Forsyth Barr, Analyst) Sorry. I didn't pick that up, Leila.
Leila Peters: Sorry. That'd be reflected in our operating cash flows, so across the first half
and second half of FY21. That would be fairly consistent.
Andy Bowley: (Forsyth Barr, Analyst) Okay. Then just lastly on that question around
working capital, what kind of working capital demands are there on the business in light of
- in the passenger behaviour and in bookings and the - and what we see from a really
advanced point of view of that further reducing through the first half?
Jeff McDowall: I mean, the - as you can imagine - and when you look at the page that
shows cash burn during the period, it comes down quite a bit. A lot of that is because of
the big bulk of refunds that we were paying early on to stabilise. So the - there is a
business as usual level of refund that we're still seeing, but in terms of the big working
capital item being revenue in advance, we're not - that will come down materially when
borders start to reopen. Well, it will start to move when borders start to reopen and with
people redeeming their credits sort of offset by cash coming in. But until that happens, I'd
expect it to be relatively stable.
Leila Peters: So I guess what I would characterise, Andy, is the difference really between
first half and second half cash flow performance or expected cash burn performance is -
obviously with the operating cash flows, we have the benefit of significantly reduced
redundancies and refunds, as Jeff already mentioned, domestic and cargo is somewhat
consistent in both periods. Investing cash flows, we have looked to defer or push out some
additional projects, so that would be slightly improved from the first half and then
financing cash flows are largely similar.
The other thing that we'd point out is fuel prices are of course higher or expected to be
higher in this half, but then that's somewhat mitigated by a stronger New Zealand dollar
and our hedging book is, of course, as Jeff mentioned previously, in the money currently.
Andy Bowley: (Forsyth Barr, Analyst) Great. Thanks, Leila. So then just taking forward the
cash burn. I recognise there's a lot of water to go under the bridge over the next few
months in light of the operating environment that we're in and border closures, et cetera,
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but if I take the comments around first half '22 being - or pushing back to higher levels,
can you give us some colour around what that kind of means in terms of some kind of
quantum if t he current operating conditions persist for the next six, nine, 12 months?
Jeff McDowall: I mean, it's - I think it's a bit early to provide any specific guidance in terms
of content, but I think the - I mean, the key difference is going to be that PAYE deferral, so
that - as you can imagine, we're taking what was a deferral over a period of 15 months
and turning it into a repayment over a period of six months . You'll see that kick in from
halfway through that second half from October. There is a little bit more debt amortisation,
I think, as well, but that's not - that's a component, but it's not huge.
Andy Bowley: (Forsyth Barr, Analyst) Okay. Great. A final question from me and to finish
off cash burn, but I'm keen just to talk balance sheet. In a post-COVID world is the historic
or are the historic target gearing ranges still appropriate for the business and what are the
key balance sheet priorities or metrics that we should be thinking about ahead of a capital
raise?
Jeff McDowall: Yes, it's a really good question. I mean, I think philosophically, our - the
position that we got to that informed our capital management and distribution policy a
couple of years ago, I think it was, still remain, which is the first priority is to maintain a
resilient balance sheet and that the way we define that is by saying we want to target
gearing. I mean, it's not a shackle, but a target of between 45% and 55%. Continue to
target an investment grade credit rating and, as part of that debt coverage of 3.3 times
maximum, recognising that you may not get there immediately and those are long-term
targets, rather than things that we have to be constrained to all of the time.
Then you kind of get to this interesting question about, well, how do you think about the
world, particularly from a liquidity perspective, when you reflect on the lessons from
COVID? That's a really difficult one. If you - I think it's - yes, it's probably reasonable to
say that it's uneconomic to hold an amount of cash that would allow the airline to
effectively not fly at all for a significant period of time, as you see in a pandemic like
COVID. But on the other hand - when we looked at all the black swan possible outcomes
when we were looking at this, a period of time like this we didn't contemplate really as a
genuine thing that we would hold liquidity for.
But having said that, I think those sort of things do naturally point you to be a bit more
conservative, at least to provide more time to react to something like this. So that's
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something that we will work through as - in the post-COVID environment.
Andy Bowley: (Forsyth Barr, Analyst) Great. Thanks, Jeff. Much appreciated.
Operator: Our next telephone question comes from Andrew Steele from Jarden. Please ask
your question, Andrew.
Andrew Steele: (Jarden, Analyst) Good morning, guys. The first one from me is just on the
operating cost base. Looking at the level of OpEx in Q2, if I was to look at that on a per
ASK basis, would that be a reasonable proxy for how you're thinking about the OpEx base
through the remainder of the year and the current operating conditions?
Jeff McDowall: Yes, I guess it would be. I mean...
Leila Peters: I mean, roughly, but of course there's a number of operating costs, Andrew,
as you know, that are not driven by ASKs. They're driven by departures, block hours and
whatnot. But I think from a round-arm swing perspective, that's fine.
Andrew Steele: (Jarden, Analyst) Okay, right.
Leila Peters: The only thing just to caution you on with there is operating costs of course in
the first and second quarter of the financial year included the benefit of the aviation relief
support subsidies and wage subsidy.
Andrew Steele: (Jarden, Analyst) Okay. You would - and just to be clear, you're not
expecting anything from that. That's right?
Leila Peters: That's correct. We're currently not anticipating any of that in the second half.
Andrew Steele: (Jarden, Analyst) Yes. Then just on the fleet CapEx spend, I was surprised
that FY22 was - remained - the guidance for that's remained pretty steady. Could you talk
to any flex you have in that number and how much could you reduce that by if needed or
are you locked into that number and so the rationale at keeping it steady at this time?
Jeff McDowall: I mean, the - one of the big items in there is the first 787 - or actually,
that's...
Leila Peters: No, no.
Jeff McDowall: ...in FY23, isn't it?
Leila Peters: No, but there's predelivery payments for the 787 in the FY22 number. The
deliveries, of course, are related to the Trans-Tasman NEOs and domestic 321s, which
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we've spoken about for a while. The current aircraft that are performing on that network
are near end of life and will need to be replaced. There is, of course, always some
flexibility in those numbers, Andrew, and they do move around a little bit, of course, with
FX and potentially with some further fleet decisions that do not need to be made at this
particular time. So it's not a concrete number, but it is our current expectation.
Andrew Steele: (Jarden, Analyst) But, I guess, to read between the lines in your
comments, it feels like a pretty firm number. There's not a lot of flex in that at this stage.
Jeff McDowall: Yes, I mean, that is fair. I mean, as Leila was saying, the two key
components - there's some predelivery payments for that first Dreamliner, which lies in
calendar '22, but late - sorry - early FY23. That one is committed and then it's the
narrowbodies that Leila described, which we actually do want and need.
Andrew Steele: (Jarden, Analyst) Great, thank you. Just the last one for me on the outlook
statement. I think at the full year result you commented that under the scenarios you were
modelling, even if Tasman and Pacific Islands were to reopen, on a monthly basis, you
would remain loss-making. I just want to check, given where you now sit in terms of
resetting your operational cost base, whether that still holds that if Tasman and Pacific
Islands were to reopen, you would remain loss-making?
Jeff McDowall: I - yes, that does still hold. The - yes, the international business being a
significant part of our pre-COVID business - obviously having Tasman and Pacific Islands
operating at a cash level will make a material difference. Obviously we'd have good
operating cash flow at that level. We may still be slightly negative, because of lease and
debt amortisation and then having international would push us back into a good positive
position, both from a cash and a EBIT metric.
Greg Foran: It would also depend on what assumptions we want to make in terms of
revenue.
Jeff McDowall: Yes, that's right.
Greg Foran: How competitive it's going to be, how long and how deep that would last, so a
lot of what-if s around that.
Andrew Steele: (Jarden, Analyst) Great. Thank you, guys.
Operator: Our next telephone question comes from the line of Nick Mah from Macquarie.
Please ask your question, Nick.
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Nick Mah: (Macquarie, Analyst) Morning, guys. Just on the potential for pushing the
aircraft deliverie s out, is there any cost to you guys of having those sli de options in there?
Jeff McDowall: Nothing material is the short answer. The - there is a degree of escalation,
so the way the contracts work is that the price is set at a given year, if you like, and then
there's sort of an inflation-driven escalation. So if you delay the delivery, then the nominal
cash you pay is a bit higher, just because of that escalation. But other than that, there's
nothing material.
Nick Mah: (Macquarie, Analyst) For exiting the leases, other than make-goods is there any
penalties on those?
Jeff McDowall: You mean for lease deferrals or lease - for accelerated lease exits are you
talking about?
Nick Mah: (Macquarie, Analyst) Well a combination of both. You’ve kind of - yes, modified
some leases during the period and there was a non-cash cost to that. Then the potential
deferrals that you - sorry, the potential lease modifications or exits in the future for some
of those 777 aircraft.
Jeff McDowall: Yes, so a couple of different things there. I mean, the non-cash cost of the
lease modifications that we’ve specified in - as part of other significant items really relates
to accounting under IFRS 16. So it’s really the right-of-use asset being re-valued or valued
downwards as our expectation of the period of use being reduced.
Then in terms of the - we have a number of aircraft with early termination options and
essentially how they work is that you can notify - with a reasonable and specified
advanced notice period, an early exit of a lease.
There’s no penalty associated with that in a contractual sense other than that when you
return an aircraft, there’s a series of return conditions which mean that typically requires a
level of investment and maintenance. So if you return the aircraft earlier with an early
termination option, then that means you spend that end of lease restoration cost earlier.
Nick Mah: (Macquarie, Analyst) Okay, great and then just lastly, could you just talk
through the difference in movement between your gross and net debt numbers versus the
change in liquidity for the period?
Jeff McDowall: Yes, I think the biggest single difference is the FX revaluation. So the - I
mean, the net debt position is probably better than you would expect because of all but
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$150 million reduction in the New Zealand dollar value of the US denomination debt.
Nick Mah: (Macquarie, Analyst) Okay, that’s good. Thanks a lot.
Operator: Once again, it is star one. Our next telephone questio n is from Marcus Curley
from UBS. Please, ask your question, Marcus.
Marcus Curley: (UBS, Analyst) Thanks. Just a couple from me. I just wondered if you could
talk to the cargo business, in particular can you talk to the margins that you’re achieving
on that at the moment and where the operating costs sit within the business at the
moment? In your reporting structure?
Greg Foran: Yes, the cargo business, Marcus is certainly contributing at this point and
we’ve got a lot of support from the international freight capacity scheme which has been
extended a couple of times now. We don’t get into the margins on how that business is
operating apart from saying that it is contributing and allowing us to do a couple of things.
Obviously move freight but importantly, move a whole bunch of people back into New
Zealand. So we’re moving the best part of 1000 people a week.
Leila Peters: Sorry, Marcus, then to your other question, Marcus, in terms of where the
costs are located. They’d be mostly predominantly in aircraft operations and fuel, of
course.
Marcus Curley: (UBS, Analyst) Okay and then secondly, I just wondered if you could
provide a little bit of colour, if you can, on your thoughts around border openings? I’d just
be keen to understand what you’re working assumptio ns are and the thinking behind that
at this stage?
Greg Foran: Yes, look, we - like I think most people around the world, and certainly those
involved in airlines, are trying to predict something here which is really difficult and it
moves and it changes, depending on the information that’s available.
So we’ve provided our outlook at this stage for the year and not providing any guidance on
that apart from saying that we think there’ll be a significant loss and the borders will open
when the various countries get in place whatever rationale that they want to put in place.
As recently as last night, I see Singapore are heading down a path which is their path and
whether that’s the path that New Zealand follows or Australia follows, we’ll have to wait
and see. We continue to talk to the right people and we’ll just have to be patient and get
those open whenever we can.
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The good thing is that we’ve got some capacity in the business that when they do open
and we can get ourselves started up again sensibly and Je ff, I think we’re doing a
reasonable job of getting that balance between having enough capacity and not just
burning a whole bunch of cash.
Jeff McDowall: Mm-hm, that’s right.
Greg Foran: Because we need that, because it ’ll take a bit of time to get planes started up
and get people trained. So I can’t comment any further than that because I don’t know
anything more than that.
Marcus Curley: (UBS, Analyst) How about if I just rephrase it then? Obviously you’re in the
thrust of thinking about your capital raising. What’s - and I suppose previously, you’ve
spoken about let’s say a sensible downside working case, have you formed a view on - I
suppose that assumption, effectively how many more months of cash burn do you think is
appropriate for the business to fund?
Greg Foran: Well we run multiple scenarios, as you can imagine, and take into account a
whole bunch of factors because these are essentially just as I said, scenarios. They’re not
even forecasts. Things do change. It’s different today than what it was in January.
Different than what it was in December. A lot different than what it was in July last year.
So we run those scenarios and as we’ve identified, we are in discussions at the moment
around capital structure and we continue to work on those scenarios with all the right
people and if the government is going to be happy that we’re in the right position, then
we’ll look to complete a new capital structure by 30 June. That’s about all I can say about
it at this stage.
Marcus Curley: (UBS, Analyst) Then just following off on that, is - can you talk to what the
key government-related hurdles are that need to be met?
Greg Foran: What exactly are you referring to here?
Marcus Curley: (UBS, Analyst) Oh, you just said if the government’s happy. If they’re
willing to support. Are there specific things they want to see to support the raise?
Greg Foran: Well they continue to talk to us about principles that we’re very aligned to
such as connecting New Zealanders with each other and running a very strong domestic
network. Making sure that we keep cargo flowing. Making sure that we’re assisting them
with repatriation.
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So I’m happy that our principles that we operate in Air New Zealand are aligned with them
and subject to the decision that they will ultimately make, we’ll get on and get this thing
completed by 30 June.
Leila Peters: Obviously, Marcus, we are working really closely with our Board in assessing
what’s the right sort of quantum and mix of debt and equity moving forward to sustain the
airline through the short and medium term.
Those - having the opportunity to have the government standby loan facility in the interim
has actually been quite beneficial as things have certainly moved a bit to the right in terms
of border openings, at least with regard to this part of the world.
So those are - these are pretty critical questions and we are working through those
scenarios very closely with our Board. The government is involved in some aspects and we
continue to move forward toward the targeted deadline that we’ve stated in the materials
of June 30. I hope that’s helpful.
Marcus Curley: (UBS, Analyst) Yes, it is. Okay, thank you.
Operator: Once again, if you wish to ask a question, it is star one. There are no further
questions at this time, I would now like to hand the conference back to Greg for closing
remarks. Please, go ahead.
Greg Foran: Thank you and thank you very much for listening. Just before we close off,
Jeff, I know that you’ve got a couple of words you’d like to say?
Jeff McDowall: Yes, I just wanted to take this opportunity to acknowledge and thank Leila
and Kim who have just done an outstanding job managing our investor relations and
continue to, together with their other responsibilities.
Also the whole Corporate Services Team who have been an absolute pleasure to work with.
Who have made my job just so much easier but also so much more enjoyable than it
would otherwise have been. So thank you.
Greg Foran: Thanks, Jeff and my final comment, thank you to you. Twenty years of service
with Air New Zealand and your depth of knowledge once again on display right now at this
meeting. So thank you for that.
If anyone would like to schedule a call or meeting for any follow up questions, then please
direct those requests through to Kim and our Investor Relations Team. Thank you again
Air New Zealand
Interim Financial Results 2021
25 February 2021
Page 20 of 20
for listening. Have a good day.
End of Transcript
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