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Air NZ warns of FY20 loss, ups job cuts estimate to 4000

26 May 2020  By Staff Reporter | news@tourismticker.com | @tourismticker

Air New Zealand expects to post a loss for the 2020 financial year but says it cannot be specific about how big it will be.

The airline’s capacity is expected to remain about 50% lower in the second half of 2020 because of low travel demand and passenger spacing requirements.

The company also said in a statement to the NZX this morning that it expected 4000 jobs to go, up from around 3500 it had previously signalled, with the restructuring to cost up to $160m.

“Given there is still a high degree of uncertainty regarding demand for air travel under New Zealand’s alert level 2, the period of time in which social distancing will be required on the aircraft and the timing of a shift to alert level 1, the airline will not be providing specific 2020 earnings guidance,” Air New Zealand said.

Chief financial officer Jeff McDowall added: “We are preparing for a scenario in which the airline is still 30% smaller than pre-Covid levels in two years’ time.”

The airline would face significant impairments but had short term liquidity of $640m, excluding funds from the $900m loan facility agreed with the Government.

“We have not yet needed to draw down on the government loan facility, as we continue to utilise all available levers to reduce our cash burn and right-size the business to reflect the expectation that, for some time, our airline will be smaller than it was pre-Covid-19,” he said.

The expected costs included aircraft impairments of $350m to $450m (partially offset by a reduction in the airline’s deferred tax liability), loss on fuel hedges of up to $105m, but offset by a gain of $21m from airport slots.

Reorganisation costs were earlier expected to be in the range of $20m to $25m for the 2020 financial year but following the swift decline in demand for air travel Air New Zealand has confirmed reductions of approximately 30% of its workforce, and expected total reorganisation costs in a range of $140m to $160m.

Chief executive Greg Foran listed the actions taken by the airline including labour reductions of approximately 30%, or 4000 employees, which was expected to drive annualised savings of $350m to $400m.

All short-term incentive schemes have been suspended, the executive team has been reduced by 30% and have taken 15% salary cuts, with directors taking 15% reduction in fees to December 2020.

The company has instituted a hiring freeze and voluntary leave options, deferred or cancelled almost $700m in capital expenditure to December 2022, including deferrals of planned A321 NEO deliveries, grounded the Boeing 777-200 and 777-300 fleet until at least the end of 2020.

Other reductions include cancellation of all non- essential spending, reduction in leasing costs and modification of various vendor and supplier terms.

As a result, Air New Zealand expects to reduce its average monthly cash outflows by approximately $50m to $60m for the 2021 financial year.

Foran said the Covid-19 pandemic has had an unparalleled impact on the aviation industry, and the future landscape of the airline will look vastly different to what it does today.

“I also want to take this opportunity to thank our customers – we know it hasn’t been an easy time for anyone amidst this crisis,” he said.

“As we begin to operate more flights our immediate priority is ensuring customer safety and restoring your confidence and desire to travel.

“There is no playbook for the situation we are currently facing, so we need to create our own.”

 


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