By Jamie Freed
SYDNEY (Reuters) – Air New Zealand Ltd said on Tuesday it would report an underlying loss in the financial year ending June 30 due to the coronavirus outbreak, but had slashed costs to the extent it had not yet needed to draw down a government loan.
The airline has cut 30% of its staff, or 4,000 employees, and will ground its fleet of 16 Boeing Co 777 widebody planes until at least the end of December. It will also take a NZ$350 million ($214 million) to NZ$450 million impairment on the planes.
“We are preparing for a scenario in which the airline is still 30% smaller than pre-COVID levels in two years’ time,” Chief Financial Officer Jeff McDowall said in a statement.
It will reduce its monthly cash outflow for the financial year ending June 30, 2021, by NZ$50 million to NZ$60 million from NZ$150 million to NZ$200 million, General Manager Corporate Finance Leila Peters told analysts.
Air New Zealand said it had short-term liquidity of NZ$640 million as of May 25 and had not drawn on a NZ$900 million government loan that carries annual interest rates ranging from 7% to 9%.
If drawn, the government has the ability to seek repayment through a capital raising by the airline after six months, or convert the loan to equity. McDowall told analysts the airline would draw on the loan if liquidity fell to NZ$200 million to NZ$250 million.
Due to a fall in demand and travel restrictions, Air New Zealand expects a 50% capacity drop in the six months ending June 30, leading to a sharp fall in revenue.
Domestic demand is not likely to rebound to normal levels by the end of 2020, in part because 20% of passengers are normally international tourists now barred from entering the country, McDowall said.
Australia and Pacific Islands travel is likely to resume quicker than long-haul destinations, he said.
The airline said it would defer or cancel almost NZ$700 million in expected capital spending to December 2022, including deferrals of planned Airbus SE A321neo deliveries.
(Reporting by Jamie Freed in Sydney; Additional reporting by Shreya Mariam Job in Bengaluru; Editing by Sonya Hepinstall and Christopher Cushing)