Air New Zealand could not survive without further help from Government - chief executive

"I'm pretty confident we are going to get some support from the Government."
"I'm pretty confident we are going to get some support from the Government." Photo credit: Getty

Air New Zealand's boss says he expects extra funding from government to go ahead smoothly and that its best-case scenario to financial recovery is a trans-Tasman travel bubble by July.

The company's Covid-19 clipped wings have seen it burn through $1 billion in cash reserves with the company today announcing a loss of $185 million for the second half of 2020

The company has just over 170 million of its own cash reserves, as well as $550 million of the government's $900 million loan facility left to see it through until flight capacity returns with the ending of border restrictions.  

It is working on a plan to raise equity mid-year, while maintaining the government's majority shareholding.

Air NZ chief executive Greg Foran told Checkpoint that without further help from the government it could not survive indefinitely, but that there were several factors that would determine a timescale. Travel bubbles with Australia and the Pacific were significant among these.

"If you think about Air New Zealand pre-Covid we were doing a third of our business domestically and about a third of our business across the Tasman and in the Pacific Islands and a third of our business long-haul," he said. 

"If we could get the Tasman back up and running and if Pacific Islands were running at the same time and if it was a reasonably stable market, if there wasn't significant discounting because there was lots of capacity thrown at it then it would go a reasonably long way to assisting us, based on the costs we've taken out of the business."

He would not be drawn on whether the Trans-Tasman flight arrangements with Australia should be reciprocal at this point, saying it was a matter for the two governments to decide on border restrictions.

"Air New Zealand operates in accordance to what those regulations are."

He said the company had a pivoting strategy based on 10 contigencies, the best-case scenario being a two-way bubble with Australia by July.

He was tactiturn about the nature of negotiations with the government over more funding at the moment, and would not confirm whether support would be turned into equity and not paid back as a loan.

"I can't comment on a transaction that hasn't been completed," he said.

"I'm pretty confident we are going to get some support from the government. We've been actively working with them and making lots of good progress there. Time is working in our favour because we know more and more about Covid as this rolls through. We'll get this together and get it in front of Cabinet, they'll make the final decision and we'll get ourselves a new capital structure by 30 June.

"We'll have to decide on how much capital we require in the business with them and that will be a combination of equity and debt. In terms of whatever the amount of equity we require for them to maintain their ownership of 52 percent, then they'll be be looking to take up 52 percent of that equity offer."

The company has extended the time within which they can spend air credits from cancellations due to Covid restrictions. About 20 percent of revenue is now from customers using those credits, he said.

"I think when we get flying internationally, people will start to use those credits more actively."

He also said they were seeing a good use of Air Points loyalty scheme with the company's partners and assured people that the scheme would not be ending any time soon.

"That's an area that we continue to see as an opportunity for Air New Zealand and we've been building plans around that and we think we can make it even better."

Foran would not rule out the possibility of customers even being able to buy shares in the company with Air Points or credits, saying all options were being looked at and worked through.