Air New Zealand
FINANCIAL AND OPERATING RESULTS
Financial Year Ended 30 June 2001
Consolidated Financial Results Overview1
Air New Zealand Limited ( the "Group") today announced an unaudited net loss after tax, excluding unusual items, of
$173.0 million for the financial year ended 30 June 2001.
The unaudited net loss before tax, earnings from associates and unusual items for the Group was $280.2 million, down
$423.5 million on the previous financial year.
Group Earnings Before Interest and Tax was a loss of $53.7 million, down $269.1 million on the 2000 fiscal year.
The Group operated in extremely difficult trading conditions throughout 2001. Sustained high fuel prices, low exchange
rates and maintenance issues combined to significantly increase the operating costs for Ansett Australia, and aggressive
competition in the Australian market significantly impacted revenue performance.
The operating problems of Ansett have been known to the market for many months. In addition, the Governments of New
Zealand and Australia have been informed on a regular basis of the financial position of Air New Zealand and Ansett.
For some months the Board of Air New Zealand has been working on the recapitalisation of Air New Zealand so that it
could fund the future expected losses of Ansett and re-equip Ansett to make it a strong competitor, and has kept both
Governments regularly informed of continuing developments. This programme was underwritten by a Memorandum of
Understanding entered into by the Company with Singapore Airlines under which Singapore Airlines agreed to take new
equity at an agreed rate of $1.31 per share and to support a rights issue. However, on Thursday 6 September Singapore
Airlines advised the Board that it was no longer willing to subscribe for equity at the rate of $1.31 per share.
On Sunday 9 September the Board of Air New Zealand became aware that after further review by the two major shareholders
they would not inject sufficient equity into Air New Zealand that would enable Ansett to re-equip.
The Board then actively sought to sell Ansett to another airline and on the 10th September entered into a memorandum of
understanding with Qantas Airways Limited to sell the businesses of the Ansett Group to them. On 12th September Qantas
advised Air New Zealand that it did not wish to proceed with the acquisition.
On 12 September, the Directors of Ansett Holdings Ltd. and subsidiaries met and resolved to place the companies into
This action has necessitated write-downs of $1.321 billion in the Group accounts against the carrying value of the net
assets of Ansett.
As a result, the Group's net loss after tax, earnings from associates and unusual items was $1.425 billion.
In addition, the net assets of Ansett Holdings Ltd. and subsidiaries totalling $620.1 million, have been written down in
Ansett's accounts at 30 June 2001.
The Governments of New Zealand and Australia were kept fully informed.
The Board of Directors of Air New Zealand has not declared a final dividend for the year to 30 June 2001. The total
dividend for the year to 30 June 2001 therefore remains as an unimputed four cents per share. This dividend, declared on
20 February 2001, was paid on 30 March 2001.
The results presented in this release are unaudited. Final decisions on the range of possible outcomes for the Group
were not able to be made until a very late stage, precluding full audit approval of the accounts. The Group will release
audited accounts to shareholders by the first week of October 2001.
As a consequence of the write-downs in relation to Ansett determined by the Board on 12 September 2001, total equity in
the Group fell from $1.839 billion to $518.0 million. Group gearing2 at 30 June 2001 rose to 93.0 % from 75.7 %.
To ensure the ongoing stability of the Group, the major shareholders (Brierley Investments Limited and Singapore
Airlines) have agreed, subject to various approvals, to each contribute $150 million by way of equity. This issue will
be priced at the lower of 67 cents per share or the volume-weighted average price at which the Company's shares trade
over the 10 business days preceding shareholder approval. Based on an issue price of $0.67 per share, SIA's pro-forma
shareholding in Air New Zealand after the share placement will be approximately 34% and BIL's will be approximately 37%.
Shareholder approval will be sought at the Annual Meeting to be held in Wellington on 30 October 2001.
In addition, the Crown has agreed, subject to various conditions, to provide a standby facility of up to $550 million to
the Company, in one of two different ways:
A revolving credit facility of up to $200 million is available to be drawn for normal working capital needs at any time
in the next two years, and is to be repaid within two years from the date of the facility becoming available; and
The Company will be able to draw, for purposes agreed with the Crown, up to $550 million (less any working capital
draw-downs against the $200 million facility) at any time over a period of five (and in certain circumstances up to
seven years) through the issue of Term Notes to the Crown, at a commercial rate at the date of issue. The notes will be
in equal proportions of seven and 10 year maturities.
The New Zealand Government has also agreed to the merger of the A and B shares, details of which will be announced in
due course and will be subject to shareholder approval
In addition, discussions are being held with financiers and these discussions are continuing.
Group Operating Results
Group operating results reflect the outcome of the full year of the integrated operation of Air New Zealand and Ansett
airlines which accounts for the significant variations from results for the previous year.
Aircraft capacity for the Group was 50.0 billion Available Seat Kilometres (ASKs), up 66.1 % from the 30.1 billion ASKs
flown by Air New Zealand (alone) during the previous corresponding period.
Total operating revenue for the Group rose to $7.960 billion, an increase of $4.304 billion over the prior year
following inclusion of the contribution from Ansett Australia. Passenger revenue increased 122.2 % to $6.092 billion.
Total operating expenditure for the year was $8.014 billion, an increase of $4.573 billion when compared with the
previous financial year. This increase was primarily attributable to the full year inclusion of the Ansett, however it
was also significantly impacted by the effects of higher fuel costs and lower exchange rates.
Ansett Operating Results
The extremely difficult trading conditions in the domestic Australian business were evident through the Ansett domestic
(consisting of Ansett Australia, Kendell Airlines, Hazelton, SkyWest and Aeropelican) EBIT loss of $165.4 million. This
loss was a consequence of the intense competition from two new entrants and Qantas Airways resulting in significant
yield declines, coupled with increased fuel and foreign exchange costs. The grounding of Ansett's Boeing 767-200
aircraft twice during the year also affected earnings.
As highlighted in a statement made by the company on 7 September 2001, these difficult trading conditions have continued
and Ansett is still incurring operating losses.
A slight decline in domestic Australia Revenue Passenger Kilometres (RPKs) resulted in a relatively stable load factor
of 74.0%. On a year-over-year basis yields declined by 13.8% due to intense price competition from new entrants and
Qantas across the Australian domestic network.
Ansett International made an EBIT loss of $22.8 million and a loss of $16.5 million at the Associates level. Passenger
revenue increased due to yield improvements and the introduction of Melbourne-Hong Kong services. These increased
revenues were not sufficient to cover the increased cost of fuel, resulting in an overall operating loss.
Ansett International's aircraft capacity declined marginally (0.7%) during the financial year, primarily due the
reduction of services to Fiji following political unrest in that country. The 1.2% decline in RPKs meant the load factor
fell 0.3 percentage points.
Air New Zealand Operating Results
Air New Zealand international operations posted EBIT losses of $50.9 million, as high fuel costs and weakening global
economic conditions impacted international services. The majority of these losses were incurred on trans-Tasman
operations. The revenue improvement due to the strength of the US dollar was more than offset by increases in fuel costs
and other foreign currency denominated expenditures.
Air New Zealand's international operations recorded 28.3 billion ASKs, up 3.9% when compared with the 2000 fiscal year.
This increase reflects increased services to Japan and Los Angeles offset by the withdrawal from uneconomic services
between Los Angeles and Frankfurt and Los Angeles and Honolulu. RPKs increased by 5.7 %, driven partially by Olympics
traffic, however yields were largely unchanged year-on-year once the impact of foreign exchange gains were removed.
Air New Zealand's domestic New Zealand operations performed well, delivering EBIT of $149.3 million for the financial
year, up 24.8% on the prior period. This result was credible given the New Zealand domestic market was also affected by
high fuel prices and, to a lesser extent, lower exchange rates.
The collapse of Qantas New Zealand provided Air New Zealand with both the opportunity and the challenge of providing
service for much higher passenger numbers, resulting in higher load factors of 67.9% on capacity growth of 5.3%.
Significant yield improvement of 11% was also achieved.
Although Air New Zealand's domestic New Zealand operation continues to face strong price competition on the main trunk
routes servicing Auckland, Wellington and Christchurch, it continues to be a solid base of profitability. The
introduction of Freedom Air, with its low cost base, will assist in protecting this strong market position.
Trading conditions remain very difficult for the continuing businesses of Air New Zealand. Fuel price, exchange rates
and global economic activity all significantly impact airline profitability. With Tuesday's terrible events yet to be
fully understood and factored into global financial markets, significant uncertainty remains in the business outlook.
Air New Zealand has hedged a significant proportion of its predicted fuel usage for the current financial year. This
will afford some protection to the operating cost position should oil markets rally significantly.
Travel patterns, for both business and leisure customers, are influenced by global economic conditions, and there is
some evidence of a slowdown emerging in world economies with growth in air travel also slowing, and this can also be
expected to be affected by the recent terrorist events. Growth levels in tourist arrivals from important origin markets
are also softening from their recent highs.
The Board of Directors wish to express their sincere thanks to shareholders, management and staff for their support
during this extremely difficult year. We sincerely regret that, despite the outstanding dedication from Ansett staff,
Ansett has had to be put into voluntary administration.
Urgent action is in train to address the challenges that have confronted the Group. The core Air New Zealand airline
operations are now in a position where they can be rebuilt as a successful airline business and national flag carrier
for New Zealand.