Air New Zealand’s shares fell 34%, to 81.5 cents at the open after a 15-minute trading halt because of the rights offer today. The price action reflects value dilution resulting from the offer. Last week, the NZ flag carrier announced a NZ$2.2billion recapitalization package, including a NZ$1.2 billion rights offer, to pay down the debts and boost its post-pandemic recovery.
Two years of border control put Air New Zealand’s passenger business on the edge. The road ahead is still tough, despite New Zealand gradually reopening its border to international travelers. Rising fuels prices will be the biggest challenge for the carrier, with the crude oil spiking to above US$130 a barrel in early March and still hanging around US$100 currently. Whether travel demand can compensate for rising costs will be a key challenge for its second-half performance. In the updated FY22 guidance, the company indicated further losses may be incurred subject to the recovery of demands.
In the newly announced recapitalization package, a further unsecured 4-year Crown loan of NZ$400 million will be issued, adding to the current NZ$1.24 billion under the remaining Crown Facility and Redeemable Shares, in which Air New Zealand may take years to repay, based on its average operating income of NZ$500 million from 2015-2019 before the pandemic.
In the half-year ending 31 December 2021, Air New Zealand had a substantial loss of NZ$376 million due to the “the national alert level restrictions and 107-day Auckland lockdown”, much greater than the first half-year loss of NZ$186 million. One positive is that NZ’s biggest carrier expects a loss of less than NZ$800 million in its FY2022 full year, revised up from more than NZ$800 million in February.
Nonetheless, we may see strong demands for the rights offer when it opens on 6 April with a discounted price of NZ 53 cents. The share price closed at NZ 94.5 cents today, which is still a premium considering the offer price.
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