There are some uncertainties ahead as Air New Zealand looks to shore up its balance sheet, says an investment analyst.
The money raised is set to go towards developing new routes, buying new planes and facilities, and staff costs, as well repaying some of its recent borrowing from the government. File photo Photo: RNZ / Nate McKinnon
The national carrier plans to raise $2.2 billion through a combination of shares and debt to restore its finances after the pandemic.
It will raise $1.2b through a heavily discounted share sale to shareholders, and the other billion will come from the government in shares and debt.
Devon Funds Management head of retail Greg Smith told Morning Report there were some questions around the amount of support for the airline's arrangement.
"It's still not 100 percent certain that they were going to get full-scale support, particularly from mum and dad investors but also institutions."
"We don't really know to what extent the industry will recover" - Devon Funds Management head of retail Greg Smith
Although the recent increase in sales after the government's announcement to reopen the borders would make the investment more attractive for shareholders, Smith said.
Yesterday, Singapore became the latest Air New Zealand destination to resume services, joining Los Angeles and Vancouver. Forty percent of the airline's international destinations are now back up and running.
Still, there were other risks to consider, such as pandemic recovery and the rising price of fuel, with crude oil prices reaching $US106.75 per barrel yesterday, he said.
"That's a substantial cost for an airline, they do have hedging in place to, I suppose, mitigate that but those hedges will run out.
"We don't really know to what extent the industry will recover to any sort of normality in terms of flying habits and so on, it should recover over time but just how quick that will be remains to be seen.
"The concerns over the growth outlook and what that's going to mean for passenger travel, and obviously the big question also is mentioned on the cost side.
"Also competition ... in terms of what that price competition is going to be like in terms of the industry generally. That was already an issue sort of heading into Covid, so there's plenty of uncertainty and again that comes back to the discount that's being offered here."
Air New Zealand has acknowledged it faces an uncertain road back to profit, with chief executive Greg Foran saying it will be three years at least before the company is back in profit.
Even by 2025, it would probably only be about 90 percent of the size it was before the pandemic, Foran said.
"We think it's the right time to launch this arrangement to the market" - Air New Zealand chair Dame Therese Walsh
Air New Zealand chair Dame Therese Walsh told Morning Report a forecast for future fuel prices had been made in the refinancing plan, but these were merely assumptions.
As for impact on flight ticket prices, she said: "Pricing is an output of a number of different things. Our objective is to provide Kiwis with as many options as possible that can suit a price point, but ultimately it will depend on a number of factors, such as fuel, but we're working really hard to keep prices as low as we can."
The money raised would go towards developing new routes, buying new planes and facilities, and staff costs, as well repaying some of its recent borrowing from the government, Foran said.