Air New Zealand cancels paying dividends following Government's $900 million loan announcement

Air New Zealand has revealed further details of the loan agreement it has entered with the Government and announced it is cancelling its 2020 interim dividend.

Additionally, the company says it's not allowed to pay "any dividends or other distributions to shareholders (including the Government) while any amount is available to be drawn under the facility".

That means the airline won't be paying its shareholders anything while the funding is used, which will be for a maximum of two years.

When the NZX opened on Friday at 10am, Air NZ's shares were lifted out of a trading halt that was in place since Monday and immediately dropped by 35 percent to trade at $1, despite the loan announcement.

In late December, Air NZ's share price was over $3 - it's now fallen 64 percent this year.

Finance Minister Grant Robertson announced on Friday the national carrier was getting a $900 million lifeline in the form of a 24-month loan facility.

"Air NZ has a unique and critical role in our economy and society. Also, the Government owns 52 percent of the company, which means we have a responsibility towards it," said Robertson.

The deal allowed the Government to convert the loan to a bigger shareholding if it was not paid back, which would reduce the value of other investors' shares. 

The airline explained in a statement to the NZX the loan was negotiated "on an arms' length basis", with both it and the Government receiving independent advice.

Air NZ said cancelling its 2020 interim dividend of 11 cents per share was a condition of the loan. That dividend, which equates to a total of $123 million, was announced on February 27 and to be paid on March 25.

"Air NZ's board of directors believes that, given the highly uncertain environment that exists, the cancellation of this dividend is in the best interests of the airline, including because that action is a pre-requisite to the availability of the facility," the airline said.

Robertson said the loan also means Air NZ is required to continue bringing Kiwis home from abroad and "that essential flights and freight lines for goods like pharmaceuticals remain open".

In its statement to the NZX, the airline elaborated on the interest it will be paying on the loan.

"The facility will be provided in two tranches - a tranche of $600,000,000 with an effective interest rate initially expected to be between 7 percent and 8 percent per annum and a second tranche of $300,000,000 with an effective interest rate initially expected to be in the order of 9 percent per annum," Air NZ said.

"The effective interest rates on both tranches will step-up by 1 percent if the facility remains after 12 months.

"The facility allows it to draw down on funds should its cash reserves drop below a minimum threshold, providing additional funds if cash reserves are not at a satisfactory level."

Dame Therese Walsh, chairman of Air NZ, said the company is "greatly appreciative" of the loan facility.

She said the Government "moved swiftly" to ensure the company had "financial certainty".

"The loan facility ensures that Air NZ can continue to play a vital role in connecting New Zealanders and our businesses with each other here at home and around the world," said Dame Therese.

On Wednesday, Air NZ CEO Greg Foran released a video to media in which he said the airline will emerge from the pandemic "fitter and stronger than when we went in".

However, he acknowledged that the company's 12,500-strong workforce was set to be reduced by up to 30 percent due to the "unprecedented" and "difficult" challenges it currently faces.