Air NZ CEO says engine problems will peak this year

Air New Zealand chief executive Greg Foran says it's currently dealing with "frustrating headwinds". Photo / NZME

Air New Zealand chief executive Greg Foran says it will likely be two to three years before the airline is back to full capacity.

“Between the Covid groundings five years ago, and then we’ve had two years now of engine issues, which are going to go for another couple of years ... these are pretty significant setbacks that fundamentally are beyond our control.”

The airline earlier today reported earnings before tax of $155 million for the six months to December 31, down from $185m in the same prior period.

Its net profit also declined from $129m to $106m.

The underlying profit was near the top end of its $120m-$160m guidance range.

But Air NZ also warned its performance for the second half of FY2025 would be “significantly lower” than the first half.

Foran said it was heading into a position where up to 11 of its aircraft could be out of action due to engine maintenance issues which had impacted Pratt & Whitney and Rolls-Royce customers globally.

That compared to its first half where between six and eight planes had been out of action.

Foran said 11 planes equated to around 5000 seats a day. But he was hopeful that would be as bad as it got.

“We do think once we get through that six months, that hopefully ... it’s not going to be suddenly 11 and we’re down to none, but progressively over the next three years, the 11 goes down to 10 and then nine and then eight and then seven.”

The engine issues affect its Airbus A321 neos and its Dreamliners.

Foran said getting two new Boeing 787s in the middle of next year would help ease the pressure. It has a total of eight on order.

“We’re missing the front row of the scrum at the moment, but we’re through the first half, we’re into the second half and give us another 18 months and we won’t be talking about some of the things we’re talking about now.

“Hopefully things will look a lot brighter on multiple fronts.”

Foran said the engine issues were not stopping it from ploughing ahead with its retrofit plans, getting electric aircraft, new uniforms and enhancing its digital platforms.

Retrofit delay

The airline was due to have its first retrofitted plane back in New Zealand by January but is now looking at March.

“We’re hoping sometime in March...we don’t completely have that finalised.”

He said normally he would expect it to take about 60 days for a first retrofit but it had taken almost 150 days.

Foran blamed the delay on supply chain issues.

“The world’s supply chain of aircraft parts is still struggling to catch up.”

He said subsequent retrofits would be quicker as it wouldn’t need to apply for regulatory approvals and all going well they could be done in 35 days.

Domestic demand

Passenger revenue fell 5% to $2.9b in the half driven by lower capacity due to fleet constraints and lower domestic demand from the corporate and government segments.

Foran said while the domestic leisure market was holding up well government spending was down 25% and there were no signs of that changing.

But corporate spending on flights was showing some green shoots. It was down 12% last year but was now down around 10%, he said.

“I don’t think it’s going to come bouncing back at 100 miles an hour, but I do think we’ve seen the bottom.”

He said as international tourism picked up, it would also help to boost domestic routes as many travellers flew into Auckland, then caught regional flights.

International tourism is back to around 89% of pre-Covid levels but some markets have bounced back much faster than others.

Foran said the US market was back to around 105% of pre-Covid numbers but it should be back at 136% because of the low Kiwi dollar against the US dollar.

China was only back up to 55 to 60%. Foran said New Zealand needed to take away the friction for Chinese travellers when it came to getting visas.

$100m buy-back

The airline also announced plans for an up to $100m share buy-back.

Foran said it had been signalling the move for some time and indicated further buy-backs could also be on the cards.

Nikko Asset Management equities analyst Tim O’Loan said the share buy-back scheme was a positive signal from the company which indicated management saw good value where the stock was currently trading and were confident in the long-term prospects of the company.

O’Loan said Air NZ’s outlook statement acknowledged the second half of the financial year would be challenging, mainly due to maintenance work which will see aircraft grounded.

“This will result in some diseconomies of scale and inefficiencies, which will impact earnings, and therefore the company is unable to give second-half guidance.

“The comfort we can however receive, given the announced share buyback, is that the company appears to be confident in longer-term prospects."

Air NZ shares were up 1c to 63.5c by mid-afternoon.