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

<h2>Air New Zealand Trading Update and FY22 Outlook</h2>
Air New Zealand’s (AIR) market update highlights ongoing material losses through FY22 despite a strong domestic backdrop and improving Tasman demand. This will further pressure balance sheet equity over the next 12 months. In summary, AIR’s recovery is still subject to a large degree of uncertainty, ongoing losses and a significant capital raise. Key points as follows:
<ul>
<li>Cash burn: Fully mitigated in recent months – the Government funding facility is still only drawn down by NZ$350m. However, AIR has benefited from deferral of ~NZ$310m of PAYE payments, which will need to be paid from Oct 2021.&nbsp;</li>
<li>Capital raise: AIR is still targeting to undertake a capital raise before 30 Sep 2021</li>
<li>EBITDA: Has been positive since Sep 2020 and AIR has been operating cash flow positive since 2Q21.</li>
<li>FY21 earnings guidance: PBT loss of no more than –NZ$450m. This compares to our current loss estimate of -NZ$446m</li>
<li>FY22 indicative earnings commentary: AIR’s not expecting a meaningful recovery in long haul in FY22. Moreover higher fuel costs and lower government support mechanisms (wage subsidies, reduced airfreight support and the aviation support package) of ~NZ$300m mean improving demand is broadly offset with similar losses expected in FY22 to FY21. We currently assume a PBT loss of -NZ$192m suggesting a material downgrade to FY22 estimates</li>
<li>Employee bonus shares: All eligible permanent staff (~8,000) will get NZ$1,000 worth of AIR shares later this year. This will equate to ~5m of new shares, meaning dilution of ~0.5%</li>
<li>Domestic: Capacity now at ~90% of pre-COVID levels with demand at ~80% of pre-COVID</li>
<li>Tasman: Capacity still at ~70% of pre-COVID with load factors expected to build as forward booking demand is robust</li>
<li>Cargo: Government scheme extension to Oct 2021 currently supports ~30 flights per week. In FY21 the scheme will contribute ~NZ$330m of revenue, but around NZ$100m less in FY22.</li>
<li>Capex: First of eight B787’s now due in FY24, from FY23. AIR still retains the deferral rights on other aircraft deliveries.</li>
</ul>
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1702852504153688598&amp;th=17a1bf5496f70a16&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9pmvz79eACOrVtJ4P4v2nuYmvTdwrXidWerMrHZgx7Nuo2Dq3e91g2yaZBoHWQULPTLdgNe1uyr5KzsYP4g-PSs2hrhaQEeBFJmLDfrFSkGWlEJpZAV5fN63I&amp;disp=emb" class="editor-image img-responsive"></figure>
 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 Trading Update and FY22 Outlook
Air New Zealand’s (AIR) market update highlights ongoing material losses through FY22 despite a strong domestic backdrop and improving Tasman demand. This will further pressure balance sheet equity over the next 12 months. In summary, AIR’s recovery is still subject to a large degree of uncertainty, ongoing losses and a significant capital raise. Key points as follows:

Cash burn: Fully mitigated in recent months – the Government funding facility is still only drawn down by NZ$350m. However, AIR has benefited from deferral of ~NZ$310m of PAYE payments, which will need to be paid from Oct 2021.&nbsp;
Capital raise: AIR is still targeting to undertake a capital raise before 30 Sep 2021
EBITDA: Has been positive since Sep 2020 and AIR has been operating cash flow positive since 2Q21.
FY21 earnings guidance: PBT loss of no more than –NZ$450m. This compares to our current loss estimate of -NZ$446m
FY22 indicative earnings commentary: AIR’s not expecting a meaningful recovery in long haul in FY22. Moreover higher fuel costs and lower government support mechanisms (wage subsidies, reduced airfreight support and the aviation support package) of ~NZ$300m mean improving demand is broadly offset with similar losses expected in FY22 to FY21. We currently assume a PBT loss of -NZ$192m suggesting a material downgrade to FY22 estimates
Employee bonus shares: All eligible permanent staff (~8,000) will get NZ$1,000 worth of AIR shares later this year. This will equate to ~5m of new shares, meaning dilution of ~0.5%
Domestic: Capacity now at ~90% of pre-COVID levels with demand at ~80% of pre-COVID
Tasman: Capacity still at ~70% of pre-COVID with load factors expected to build as forward booking demand is robust
Cargo: Government scheme extension to Oct 2021 currently supports ~30 flights per week. In FY21 the scheme will contribute ~NZ$330m of revenue, but around NZ$100m less in FY22.
Capex: First of eight B787’s now due in FY24, from FY23. AIR still retains the deferral rights on other aircraft deliveries.

Andy Bowley&nbsp; Head of Research

 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: Trading Update and FY22 Outlook