New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Auckland Airport To Freeze Aeronautical Charges</h2>
Auckland Airport (AIA) will delay its aeronautical repricing for 12 months – this is confirmation of its previous commentary and should be no surprise to the market. Its current five year regulatory pricing period (PSE3) ends on 30 June 2022, with the next one (PSE4) due to begin on 1 July 2022. In summary:
<ul>
<li>Aeronautical prices for FY23 will be held the same as FY22. Albeit last year (from 1 October 2021) AIA added NZ$2+GST to its international (and transit) passenger charges (an increase of +13%) to reflect additional costs to enable quarantine free travel. This increase could be further adjusted for FY23.</li>
<li>Prices for FY24-FY27 would be determined following consultation with airlines and based AIA’s targeted return (= regulatory WACC) and reflective of passenger forecasts at that time.</li>
</ul>
It is unclear at this stage what point in time the WACC would be determined – at the beginning of the five year pricing period or when prices are set. This could have a material difference on the pricing outcome should the risk free rate move.
Our FY23 earnings forecasts already assume that aeronautical prices are frozen at FY22 levels, but we assume annual high single digit increases in aeronautical charges through the remainder of PSE4 to reflect a higher WACC and constrained passenger numbers through FY23.
The aeronautical charge freeze will have no impact on our assessment that AIA may breach its interest cover covenant as at 30 June 2022 as outlined in our recent report&nbsp;Auckland Airport: Omicron 2H22 Dent, but More Rapid Recovery&nbsp;dated 21 January 2022.

Auckland Airport To Freeze Aeronautical Charges
Auckland Airport (AIA) will delay its aeronautical repricing for 12 months – this is confirmation of its previous commentary and should be no surprise to the market. Its current five year regulatory pricing period (PSE3) ends on 30 June 2022, with the next one (PSE4) due to begin on 1 July 2022. In summary:

Aeronautical prices for FY23 will be held the same as FY22. Albeit last year (from 1 October 2021) AIA added NZ$2+GST to its international (and transit) passenger charges (an increase of +13%) to reflect additional costs to enable quarantine free travel. This increase could be further adjusted for FY23.
Prices for FY24-FY27 would be determined following consultation with airlines and based AIA’s targeted return (= regulatory WACC) and reflective of passenger forecasts at that time.

It is unclear at this stage what point in time the WACC would be determined – at the beginning of the five year pricing period or when prices are set. This could have a material difference on the pricing outcome should the risk free rate move.
Our FY23 earnings forecasts already assume that aeronautical prices are frozen at FY22 levels, but we assume annual high single digit increases in aeronautical charges through the remainder of PSE4 to reflect a higher WACC and constrained passenger numbers through FY23.
The aeronautical charge freeze will have no impact on our assessment that AIA may breach its interest cover covenant as at 30 June 2022 as outlined in our recent report&nbsp;Auckland Airport: Omicron 2H22 Dent, but More Rapid Recovery&nbsp;dated 21 January 2022.

Auckland Airport: To Freeze Aeronautical Charges

Auckland Intl Airport

Auckland Airport: To Freeze Aeronautical Charges