Cartel case: Air NZ already factored in penalty

Photo / NZ Herald

Air New Zealand said the $7.5 million penalty it had agreed to pay to settle legal proceedings with the Commerce Commission had already been factored into its earnings forecast for the year to June 30.

The proceedings alleged the airline colluded to impose fuel and security surcharges for air cargo shipments to and from New Zealand.

Air NZ has long fought the charges while 10 other airlines charged with similar offences have quietly settled, paying a total of $35 million in penalties.

Air NZ said the settlement "avoids further protracted and costly litigation''. The agreed $7.5m is subject to court approval and a decision from the High Court is expected within a fortnight.

Air NZ said in a statement the amount was already factored into its guidance for "normalised'' earnings before tax guidance, which was released to the market in April.

The company said then that it expected 2012/13 normalised earnings before tax to be in a range of $235m to $260m.

In today's statement, Air NZ said: "The company has continued to perform soundly in stable market conditions and expects the 2013 normalised earnings before tax to be at the upper end of the range provided in the April guidance.''

Brokers Macquarie said prospects of a final settlement with the Commerce Commission would remove an element of uncertainty for Air NZ.

"While the settlement of the ongoing litigation was a little surprising given Air NZ's continued statement of innocence in the case, it does provide investors with increased certainty as the risk of a potentially larger settlement, together with the ongoing legal costs, are removed from the investment case,'' the brokerage said.

Air NZ has already spent $10m in legal fees to fight the case.

Macquarie noted that Air NZ, which is on the government's list for a partial sell-down, had upgraded its guidance for the third time in five months. The brokerage has forecast the airline's earnings before tax to be of $245m, slightly below the market consensus of $249m, for the current year.

"Air NZ continues to benefit from positive operational momentum, as well as a weakening fuel environment, offset somewhat by currency movements,'' it said in a research note.

Macquarie said it expects the momentum to continue into 2013/14 ``which should provide a positive backdrop for investors should the Government elect to sell down its 73 per cent stake''.

Shares in Air NZ last traded at $1.50, up 3c from Thursday's close.