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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Air New Zealand</h2>
Liquidity and Earnings Update
Air New Zealand’s (AIR) market update highlights the significant operational and financial challenges that it faces in light of COVID-19. In response it has implemented a range of actions to reduce its cost base and manage the ongoing cash burn from monthly operating losses. Key points as follows:
<ul>
<li>Liquidity: The company has ~NZ$640m of near term liquidity and has yet to utilise the NZ$900m Government loan facility.</li>
<li>Cash burn: Cost savings initiatives in place will reduce the monthly cash outflows by NZ$50m-NZ$60m during FY21. This should reduce the net cash burn to ~NZ$100m per month on our estimates.</li>
<li>Capex: ~NZ$700m of expected capex has been deferred or cancelled to December 2022 implying a substantial reduction in capex for the next 2.5 years.</li>
<li>FY20 earnings guidance: AIR now expects an underlying loss for the FY20 year but refrains from proving guidance (we forecast an NPAT loss of –NZ$116m).</li>
<li>Significant items: Additional significant items have been flagged. De-designation of hedges (NZ$85m-NZ$105m), non-cash aircraft impairment charges (NZ$350m-NZ$450m) and reorganisation costs (NZ$140m-NZ$160m from NZ$20m-NZ$25m previously announced).</li>
</ul>
AIR’s NTA at 30 June 2019 was NZ$1,903m or NZ$1.68 per share. The cash burn to-date, together with the significant items highlighted above suggest a reduction in NTA as at 30 June 2020 of 50c-60c. We expect the company to address its balance sheet at some stage with a recapitalisation, albeit the initiatives undertaken to date and lack of any financial covenants on its debt mean it has time on its side.
Management will host an investor call at 2pm. Register here&nbsp;<a href="https://s1.c-conf.com/diamondpass/10007300-invite.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10007300-invite.html&amp;source=gmail&amp;ust=1590537732612000&amp;usg=AFQjCNE3Rt6enY1M8kHP8Rx4KCMSNelFWA" rel="noopener">https://s1.c-conf.com/diamondpass/10007300-invite.html</a>
Andy Bowley&nbsp; Head of Research Forsyth Barr Limited&nbsp;
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Air New Zealand
Liquidity and Earnings Update
Air New Zealand’s (AIR) market update highlights the significant operational and financial challenges that it faces in light of COVID-19. In response it has implemented a range of actions to reduce its cost base and manage the ongoing cash burn from monthly operating losses. Key points as follows:

Liquidity: The company has ~NZ$640m of near term liquidity and has yet to utilise the NZ$900m Government loan facility.
Cash burn: Cost savings initiatives in place will reduce the monthly cash outflows by NZ$50m-NZ$60m during FY21. This should reduce the net cash burn to ~NZ$100m per month on our estimates.
Capex: ~NZ$700m of expected capex has been deferred or cancelled to December 2022 implying a substantial reduction in capex for the next 2.5 years.
FY20 earnings guidance: AIR now expects an underlying loss for the FY20 year but refrains from proving guidance (we forecast an NPAT loss of –NZ$116m).
Significant items: Additional significant items have been flagged. De-designation of hedges (NZ$85m-NZ$105m), non-cash aircraft impairment charges (NZ$350m-NZ$450m) and reorganisation costs (NZ$140m-NZ$160m from NZ$20m-NZ$25m previously announced).

AIR’s NTA at 30 June 2019 was NZ$1,903m or NZ$1.68 per share. The cash burn to-date, together with the significant items highlighted above suggest a reduction in NTA as at 30 June 2020 of 50c-60c. We expect the company to address its balance sheet at some stage with a recapitalisation, albeit the initiatives undertaken to date and lack of any financial covenants on its debt mean it has time on its side.
Management will host an investor call at 2pm. Register here&nbsp;https://s1.c-conf.com/diamondpass/10007300-invite.html
Andy Bowley&nbsp; Head of Research Forsyth Barr Limited&nbsp;
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Air New Zealand: Liquidity and Earnings Update