New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Air New Zealand 1H21 Preview — Holding Pattern, Low on Fuel

NEUTRAL
Air New Zealand (AIR) is due to report significant underlying half year losses on 25 February 2021, reflecting the impact of border closures and other government restrictions on passenger travel. We estimate a pre-tax loss (PBT) of -NZ$184m in 1H21, but recognise an abnormally high margin for error in this forecast. While AIR has provided (1) monthly cash burn guidance, (2) pax operating stats, and (3) details of cost reductions, the impact of working capital movements and revenue from airfreight and other non-pax sources will heavily influence the quantum of losses. Looking forward, the pax recovery profile has been pushed out by a combination of (1) new recent community cases on both sides of the Tasman, (2) the persistance of COVID-19 in beating border controls, (3) the NZ Government's unwavering stance of health first, and (4) the relative speed (slower than other countries including Australia) of NZ's vaccination programme. This will likely prolong AIR's losses deep into FY22 (downside risk to our forecasts persist) and further dent the outlook for net asset value (NAV).&nbsp;


Key things to consider ahead of the result:&nbsp;



Capital raise:&nbsp;AIR has said that it will undertake an equity raise (with support from the Crown) to strengthen its balance sheet by the end of FY21. The total amount required to navigate COVID-19 remains uncertain.&nbsp;
Cash burn:&nbsp;Previous cash burn guidance was for monthly net outgoings of NZ$65m–NZ$85m. This suggests the company will now be ~NZ$500m into the government's NZ$900m loan facility.&nbsp;
Airfreight offset:&nbsp;AIR has said that airfreight has been around ~30% of the previous long haul business.&nbsp;
Passenger revenue:&nbsp;Monthly operating stats suggest pax revenue is down ~-73% in 1H21 against the prior year.&nbsp;
Recovery profile:&nbsp;The prospect of&nbsp;NZ's&nbsp;border restrictions loosening (including a trans-Tasman bubble) ahead of mass inoculation appears increasingly remote. This will impact the capital needs of AIR and may result in further cost base initiatives.&nbsp;



Conference call


AIR will host a result conference call on 25 February 2021 at 10am. Register at: https://edge.media-server.com/mmc/p/8pk6stwo



Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Air New Zealand: 1H21 Preview — Holding Pattern, Low on Fuel