Agency keeps Air NZ credit rating under scrutiny

Ratings agency Standard & Poor's is keeping its B-minus long-term corporate credit rating for Air New Zealand on "CreditWatch with developing implications" after this week's recapitalisation announcement.

The agency said its C short-term rating on the airline also remained on CreditWatch with developing implications.

The Government's long and short-term ratings have not been affected by its decision to bail out Air New Zealand.

Standard & Poor's said the $885 million up-front cost of the rescue package - a mixture of loan and equity - was 0.8 per cent of gross domestic product, but would not increase the Government's "modest" net debt burden.

On Air New Zealand's rating, the agency said that although the Government's planned recapitalisation was a positive development, the cash injection, to be made in two instalments, would take three to four months to complete.

The plan was also subject to various approvals and conditions. It must pass through Air New Zealand's banks, other financiers and shareholders.

The Federal Court of Australia and Ansett's creditors needed to approve Air New Zealand's $A150 million ($185.50 million) Ansett settlement and the Government must complete due diligence on the airline.

The agency said the CreditWatch developing status indicated that the rating could go up or down.

If Air New Zealand's banks and other financiers continued to support the company, and all other necessary approvals and agreements for the recapitalisation of the airline were obtained, a modest rating upgrade could result once the recapitalisation was completed.

"A higher rating is possible, given Air New Zealand's very strong position in the New Zealand aviation market, which offsets its exposure to greater competition and uncertainty in its international routes."

A final rating determination would take into account Air New Zealand's proposed business plan to cut flight schedules and achieve significant cost reductions, the adequacy of the $885 million injection and the overall strength of the company's operating performance.

- NZPA

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