After posting its first loss in nearly 20 years, Air New Zealand plans to draw down on a government-backed NZ$900 million loan to help the carrier deal with the fallout from the COVID-19 pandemic. However, the loan will come at a cost, with an interest rate of between seven and nine percent, while the government will retain the right for repayment after six months or conversion of the loan into an equity stake. “It was always intended as a short-term funding arrangement,” Chief Financial Officer Jeff McDowall told Reuters news agency in an interview. “It is not cheap because it is short term.”
With security for the loan provided in the form of aircraft, this will hog-tie Air New Zealand when it comes to options for commercial funding until the government loan is repaid. The antipodean carrier anticipates a further loss this fiscal year after reported an underlying pre-tax loss of NZ$87 million in the 12 months ended June 30, compared with a NZ$387 million profit for the previous year. Stronger-than-expected domestic demand and increased cargo flying has managed to help beat a NZ$120 million loss that had been forecast back in June. However, the bottom-line figure blew out to a NZ$454 million loss, driven by aircraft impairments and restructuring charges.
Air New Zealand has cut around 30% of its workforce and grounded most of its long-haul fleet in order to reduce cash burn amid international travel restrictions. The domestic market recovered to 70% of normal levels in July when New Zealand managed to eliminate local transmission of the coronavirus. (US$1.00 = NZ$1.51 at time of publication.)
