Air NZ into bankruptcy again

[stillalbatross]

With the govt down $100 million (and counting) and oil prices soaring and profits getting hammered and losing hkg tax hearing and competition increasing and share price in the toilet will Air NZ still be around by Christmas?

Oil price floors Air NZ shares


24.08.05


By Chris Daniels


Soaring jet fuel prices have hammered Air New Zealand's share price, as the airline prepares to announce a new chief executive and unveil its profits for the past year.

The national carrier yesterday became the first in the region to launch a new round of fuel surcharge increases, including boosting domestic fares 4.5 per cent from a week tomorrow.

It was quickly followed by Qantas, which last night also increased its fuel surcharges - its fifth such rise since May last year.

Following the news, Air New Zealand's shares hit a record low of $1.20c before recovering to trade a cent higher at $1.22.

Its shares have dipped below that level just once before, on September 24, 2001, as the airline teetered on the brink of bankruptcy.

At that time they were technically trading at 88c but yesterday's record low is measured in adjusted terms - following a five-for-one share consolidation this time last year.

The fuel surcharge means the cost of short-haul flights across the Tasman and on Pacific Island routes will increase $10 and long-haul sectors will go up by $20.

The surcharge for flights from New Zealand to Britain is going up by $20 to reach $152 each way.

Benchmark Singapore jet fuel prices have increased by 60 per cent since the start of this year, but have gone up only 1 per cent since the surcharge was last raised, in early April.

Chief financial officer Rob McDonald said the airline could no longer sustain the extra cost of fuel.

Just two months ago it was expected that fuel would account for around 20 per cent of the airline's annual costs, at around $623 million.

Unveiling the increased surcharge this week, McDonald said this year's fuel bill would now top 30 per cent of costs.

And despite the new surcharge, Air NZ would still not be fully recovering the higher cost of jet fuel.

The latest share price means the Government is $80-100 million out of pocket on its $1 billion investment in Air New Zealand, for which it paid an average of $1.30 a share.

The impact of high fuel prices on company profits will be top of the agenda next Monday, when Air New Zealand announces its profits for the June year.

In February, it paid its first dividend in four years - 2.5c a share.

It said it expected to pay another 2.5c a share, which should be announced next week.

Expectations of a $240 million pre-tax profit were shelved in June, when the airline said the impact of oil prices meant it was more likely to match earlier forecasts of $220 million.

One of the problems facing the airline is that it must renew expiring hedge contracts at much higher levels.

Many of the world's airlines have announced increases in their fuel surcharges over the past two weeks, including some of the big US carriers.

* Air NZ yesterday said it had reached a deal with Hong Kong tax authorities over disputed back taxes.

The Hong Kong Inland Revenue Department last year said an Air New Zealand subsidiary owed it $47 million in back tax from its formation in 1989 to 2002.

The airline said that extending the Hong Kong IRD's approach to include later years "could add a further $60 million, giving a potential exposure of $107 million".

Rob McDonald said the company was "highly satisfied with the outcome," and the settlement would have "no negative material impact on the company".

The airline will not say exactly how much of the back tax it has agreed to pay.

[AIRWAY]

Let's hope they will still be around, the industry doesn't need anymore airlines going under.

On another matter will they do an Air Canada and cancel some of their aircraft orders? Or maybe delay them :confused:

[pakeha-boy]

well I reckon the 1,000 shares I have in Airnz was a shot in the dark in the first place.....bought them after 9/11...by the time all the bean-counters get done with the place.......,the management pukes get their "golden parachutes" ......the pilots take another paycut........tell you what ,Ill buy you all a singlet and wrap them in Airnz share paper.......there you go ,see I knew they would come in handy for something...........BUGGER!!!!!!!!!!!

[distracted cockroach]

Maaaate,
Don't worry about it. Stick the certificates in the bottom of a drawer and leave them there. One day, a long time in the future, you never know.....when someone invents a jet engine that runs on bull****, Air NZ and all the other airlines will be worth a fortune.
Meanwhile, you've got nice drawer-liners!
At least you only bought a thousand.........

[Don Won]

Saw a bit on the telly last night on how Ralphy had done all these great things for anz, what a joke all he did was ride the wave of a $885 million dollar nz tax payer bail out.....took a look over his sholder to see what a few other airlines were doing to save money, implerment a few changes and boom he's saved the day!
On one hand Ralph Norris is saying that anz is a profitable company now and into the futhure, but when he was asked by the comerse commishion why the company needed to join with QF he said it was vital to the companys long term survival and even took a parting shot at the commishion on his leaving speach. So what is it is kuz??
Rember the Rats are always first off a sinking ship.........

[Boney]

Air NZ should just do what they did last time they were struggling.

Why don't they buy say, Jet*. Get Jet* to pay for all the fuel used by both airlines and just suck it dry. Hey, worked last time with Ansett.

No wonder the fuel price is really hurting them - they not used to having to pay for it.

I never worked for Ansett or any of the subsiduries but will NEVER fly with this airline as long as I live!

[ZK-NSJ]

give it a rest boney, given the fact it was qantas's former number 2 man running the show at the time, maybe there was a motive behind it all strong/dixon/jackson sent toomey over to deal with air nz and ansett and deal with them he did

[Plas Teek]

I was going to post something about the fact that Air NZ shouldn't have bought a lemon (AN) in the first place, but I decided against it.

[NoseGear]

Boney, your a carnt. Acutally, your not, they're useful.:rolleyes:

Nosey

[Split Flap]

Ansett was a big hairy lemon long before Air NZ had anything to do with it. Go Boney ya mum.

[MOR]

Plas Teek

Nah, go on, I think you post something about that... ;)

Air NZ got what they paid for with Ansett.. a big, money-absorbing, failure. It was dead long before Air NZ got it.

Norris and Air NZ may have received a cash injection from an investor (not a handout as the Origin Pacific sycophants will tell you), but if he hadn't used it wisely, and implemented the correct sweeping changes, Air NZ would have been bankrupt again shortly thereafter.

As it is, they are simply doing what other big carriers are doing - and many of those are making large profits.

Having said all that, if they can't survive in the current climate, they should be allowed to die - assuming a merger with Qantas is permanently off the cards. Norris was right about that.

[27/09]

Still albatross

Can't see any justification for your headline in anything you have posted.

Whats your point?

[stillalbatross]

27/09

At a time when the world economy is going pretty well, (without looking at any down sides around the corner) this airline must be able to perform well in the current conditions irrespective of the fuel price.

From what I'm reading it isn't performing at all well (and it's going to get a whole lot worse) so I don't see why the government should wade in and prop it up if the business plan it's got isn't currently working. Flog it off to Qantas instead, or if we're really lucky there might be more than one interested party (unlikely after the buttf*ck the NZ govt dished out to Singapore last time)

Eventually it will have to be looked at as a business that must make money, not some charity basket case that pleads to the government every 5 minutes that it needs another handout because it's sustained survival is for the good of the country. It's pretty obvious it isn't.

Plenty of other good companies, including competition that Air NZ put under, haven't got jack from the government.

[Gnadenburg]

If a terrible set of events, beyond control of AirNZ employees, sets into motion mass retrenchments or worse, collapse, there are thousands of ex- Ansett people in airlines all around the world happy to reciprocate the support and good will received from AirNZ staff during our terrible period.

Although I feel for all AirNZ employees, I especially feel for the large number of former Ansett staff, sympathetically recruited by AirNZ post collapse, who may have to go through it all again.

[reynoldsno1]

The national carrier yesterday became the first in the region to launch a new round of fuel surcharge increases
Nah - Thai Airways got in two weeks before them - I know - paid for some tickets months in advance to avoid the increase.....

[doubleu-anker]

I don't know why they don't let the thing sink. Be a lot less burden on the tax payer.

She got rid of the Air Force, which I think was a damned sight more important to the counties defence etc., than an outfit keeping a "select" few in employment at great cost to the tax payer.

[MOR]

Air NZ is not a burden on the taxpayer in any way, shape or form.

Air NZ does not receive any taxpayer assistance.

If you are referring to Helen investing in them - it was an INVESTMENT , not a handout. They have to give it back, with interest.

It is no different to Pero and his mates investing in Origin Pacific.

In fact the two are very similar - Air NZ was dead without the government, Origin was even deader without Pero and his mates. At least Air NZ paid it's bills, unlike Origin.

It constantly amazes me that allegedly intelligent pilots don't understand the difference between an investment and a handout.

[Wizofoz]

MOR,

You are being rather naive. An investment is made because the investor sees an opportunity to make a good return on that investment. The NZ government bailed out AIRNZ for purely political reasons. It knew it would carry the can if the airline collapsed (rightly so too!!) because of it’s inept handling of the whole fiasco.

An investment with no prospect of a return=handout

[MOR]

No, I think you are being naive. There is every prospect of a return - even if Air NZ went bankrupt, the assets and delivery positions are worth quite a bit.

Also, an "investment with no prospect of a return" does NOT equal a handout. Even if there is no return, the original sum must still be repaid (and will be, out of the remains, should Air NZ fail). A "handout" is given with no expectation of ever seeing the money again, which I doubt Helen intended.

More to the point, the share price doesn't accurately reflect the health of company, merely the markets confidence, and that is in turn largely affected by external factors such as fuel prices.

Anyway... we shall see... ;)

[27/09]

stillalbatross


At a time when the world economy is going pretty well, (without looking at any down sides around the corner) this airline must be able to perform well in the current conditions irrespective of the fuel price.

So Air New Zealand is the only airline that has introduced a fuel surcharge, I think there is a post on this thread that mentions at least one other airline that has a surcharge.

or if we're really lucky there might be more than one interested party (unlikely after the buttf*ck the NZ govt dished out to Singapore last time)

Have to agree on this point, the Government didn't make any friends here.


Eventually it will have to be looked at as a business that must make money, not some charity basket case that pleads to the government every 5 minutes that it needs another handout

Where has it been reported that Air New Zealand has been asking for more money from the Government.

You must be on a different page. I still don't see any facts to back up your headline. Your posts seem to be more sour grapes.

[Wizofoz]

the original sum must still be repaid

MOR,

Not necessarily so. The NZ goverment invested in AIRNZ by buying a majority interest in the form of newly issued shares. They are a shareholder not a creditor.

1 Billion shares worth 0= a return of 0. Creditors get paid out in a bankruptcy, not shareholders.

[stillalbatross]

You lot bleating about fuel prices are missing the point. The airline is losing market share and going down the toilet with or without the fuel prices. For some reason you seem to have forgotten everyone is paying more for their fuel, not just poor little Air NZ so in that respect (Emirates aside) all airlines are struggling to cope. And the high NZ dollar is offsetting the price of oil which is paid in USD so when the NZ dollar drops to 60 cents as most economists predict, there is going to be even more bleeding.

It would appear that there isn't really a place in the world for a little niche player like Air NZ and it would be far better operating as a division of Qantas. Unfortunately that won't happen just yet as the big fish little pond kiwi approach chugs along. Much like the NZ stockmarket, which refuses to accept it's slowly dying, loses companies to Australia and can't scrape together any venture capital in NZ to get NZ businesses going, the era of Air NZ doing what it's always done is well and truly over.

Plenty seem to have forgotten that the primary reason Cushing lead them into the Ansett Aust was because he didn't see Air NZ's survival long term with its current market share and population base.

The airline is stumbling back to where it was 5 years ago pre Ansett and survivability-wise nothing has changed. It is doomed if it goes it alone and fuel prices are just another nail in the coffin of it in it's present form.

And MOR 2.5 cents per share at a buck and 20 is about a 2% return on the billion and a bit that the govt loaned. That is crap in comparison with what other airlines are paying dividend wise and I'll wager that investor confidence is way low because they don't like what they see, a very sick company with poor long term prospects.

[petitfromage]

Personally I think the kiwis are lucky!

4yrs ago the pacific peso ($NZ) was worth $US0.33....today it is worth US$0.69.

Things would have been twice as bad a few years back and will be again very soon.

As the US puts up interest rates the $US will strengthen....and then the sh1t will really hit the fan downunder.

QF will not be exempt either, these are the good old days; things are only going to get gloomier so tighten you boots, its going to be a fun ride (to watch!)

[Speeds high]

Air NZ announced profit today, and looks pretty good all things considered.

On the investment thingie, did the Government not bail airNZ out as in investment in the country, ie they were looking at the bigger picture.

[MOR]

Speeds high

Quite right, a return on investment should not be seen in purely monetary terms. For a start, the government didn't have to pay out millions in state benefits to unemployed Air NZ workers. Keeping Air NZ alive was a good idea from several different angles.

stillalbatross

Seen from a standard Australian viewpoint (ie a little one-eyed). Niche players are often the most profitable- ask Mr Branson. Oh, and you might like to check your facts - the government didn't spend "a billion and a bit". The government invested NZD885 million in Air NZ, and have a 82% equity stake in the company. It is a public company, with shareholders.

Interesting that a "very sick company" has just posted a healthy profit.

[stillalbatross]

Keeping Air NZ alive was a good idea from several different angles
have to politely disagree with you there, much like protectionism and an inability to cope with market forces, the Govt walzing in to prop up a sick company because it couldn't survive on a level playing field reeks of stupidity that will eventually catch up with it.
The whole idea that by putting in 885 million saves jobs is a sad socialist approach that has no place in a freemarket economy. Air NZ wasn't about to die, the brand was (and still is) too lucrative it just would have traded under different circumstances.

Niche players are often the most profitable- ask Mr Branson
VB is taking a hammering at the moment and if you look at where niche players eventuallly go in the airline industry, swallowed up or spat out, you would see that it is a difficult place for Air NZ to be. Though I agree that the niche approach remains the most viable if they want to remain with some degree of independence.

It is a public company, with shareholders Love that, after the 5:1 dillution of shares and the hammering of the share price my $50000 invested 5 years ago is worth about $6000 today.

Which makes 2.5 cents in real terms less than half a cent a share dividend.


But I'd haveto agree with Norris that Auckland Airport is a bad joke. Turning the Taxiway into a Runway because the profits have disappeared off elsewhere when the main runway has been due for upgrade since the late 70's is third world.

[MOR]

have to politely disagree with you there, much like protectionism and an inability to cope with market forces, the Govt walzing in to prop up a sick company because it couldn't survive on a level playing field reeks of stupidity that will eventually catch up with it.

Yes, I put that badly. What I meant that was from the governments point of view it was a good idea.

Artificially propping up companies is never as good idea. However, I am not convinced of your assessment that Air NZ wasn't in very deep trouble... I doubt that Helen would take the considerable political risk of investing in Air NZ if they were not very close to failure.

Besides, your argument appears to defeat itself. On the one hand you are implying that Air NZ was a sick company, on the other you are saying that the brand is too lucrative to die and the company could just trade under different circumstances. What different circumstances, exactly?

VB is taking a hammering at the moment and if you look at where niche players eventuallly go in the airline industry, swallowed up or spat out, you would see that it is a difficult place for Air NZ to be.

VB is only a small part of Branson's empire. Virgin Atlantic is a niche player and seems pretty healthy to me. Of course VA took a beating in the early days, if only from the BA "dirty tricks" campaign... that is part and parcel of being a niche (or any) player. However, they are fine now.

Love that, after the 5:1 dillution of shares and the hammering of the share price my $50000 invested 5 years ago is worth about $6000 today.

Such a short-term view. I see the price was up 2c yesterday, and I'm sure it will continue to rise as the company gets back on track. Let's see where it is in two years, right now it is only just starting the climb out of the valley. Give it time.

After the first Gulf War, virtually all airlines saw their share values fall through the floor. Most bounced back. I'm sure Air NZ will too.