Air New Zealand’s long awaited $NZ2.2 billion recapitalisation plan that emerged on Thursday will test the appetite of big investors in Australia and NZ for airline and tourism related stocks.
The massive funds raising will need strong support from the NZ government and major fund managers in NZ and Australia and tell us if the big end of the market is firstly interested, and then to what extent.
Major fundies taking up big allocations will be a convincing vote in favour of the travel/tourism/aviation sectors and open the way for Qantas when it comes to market, as it surely will and Virgin Australia.
While the NZ government will retain a 51% stake in the airline post the recap, that means more than $NZ1 billion will have to come from the market.
Air NZ wants to hire more staff, buy new planes and expand its routes as it seeks to rebuild from the billions of dollars in losses caused by the coronavirus pandemic.
Air New Zealand’s shares were put in a temporary trading halt late Wednesday ahead of the announcement which emerged first thing Thursday.
As well as being used to invest in the business, some of the new money would be used to pay back government loans.
About 55% of the $NZ2.2 billion of new money would come from an offer to existing shareholders, under which they can buy new shares at a steep discount to the last trading price.
In addition to the underwritten $NZ1.2 billion renounceable issue (to be made at 53 NZ cents per share compared to the last price of $NZ1.375, a discount of 61%), $NZ600m of redeemable shares to be issued to the Crown under the existing subscription agreement previously announced on in December 2021 and a new committed unsecured 4 year Crown Loan of $NZ400 million will be made.
The New Zealand government currently owns 51% of the airline, a ratio that won’t change under the plan.
When the pandemic hit, Air New Zealand responded by cutting back its flights by 95% and slashing thousands of jobs, reducing its workforce by nearly one-third and depending on government support – both in covering costs and deficits but also the effective underwriting of the airline’s freight business.
These measures kept Air NZ alive though two years of some of the world’s toughest border restrictions, which effectively snuffed out a global tourism sector.
Domestic flights have recovered somewhat but the airline still expects to lose about NZ$800 million this year.
The Ardern government announced earlier this month it will reopen to tourists from the US and many other countries by May 1 as the pandemic threat recedes. Travel between Australia has already resumed.
Air NZ CEO Greg Foran said its top priorities were to grow its domestic business, optimise its international routes and grow its loyalty program (which like Qantas, has helped keep the airline going as well).
Chair Therese Walsh said in the statement that despite the cutbacks, the airline had been able to keep the nation connected throughout the pandemic, allowing New Zealanders to return home, bringing in vital supplies and keeping its export markets running.
“While we know there are still bumpy skies ahead, the timing is right for us to position the airline for recovery,” she said.
Shares in Air NZ finished down 6.6% in Australia at $1.195 which was understandable given the enormous dilution coming down the track.
