Air NZ buying 10 new Boeings

12.00pm

Air New Zealand announced today that it is buying 10 new long-haul aircraft from Boeing.

The airline said it had signed agreements to buy eight new Boeing 777-200 ER and two Boeing 7E7 aircraft, as well as rights to buy a further 42 long-haul aircraft.

Given the size of the transaction -- more than $1.3 billion -- Air New Zealand needs shareholder approval under Stock Exchange and Companies Act requirements.

Trading in Air NZ shares was halted this morning pending its annoucement.

Air NZ said in a statement that the new Boeing aircraft would allow it to develop new routes and increase frequency on existing routes, as well as provide an overall increase in passenger and cargo capacity.

"Another benefit is that the new fleet will provide Air New Zealand with lower operating costs and improved financial performance over and above that which could be achieved by expanding the existing fleet of 10 Boeing 767s," it said.

Four of the new 300-plus seat Boeing 777-200 ER aircraft would be bought and the other four leased from International Lease Finance Corporation. The cost of the four aircraft and the necessary infrastructure to maintain the fleet of eight was more than $1 billion.

The first five aircraft were expected to be delivered by April 2006, with the other three introduced in the last half of 2006.

All the aircraft would be powered by Rolls Royce Trent 800 series engines.

The delivery date for the two 7E7 aircraft, capable of carrying about 230 passengers, was still to be determined, but it would coincide with the retirement from service of the remaining 767s.

The cost of these two aircraft and necessary infrastructure to support them was more than $350 million.

The 7E7s would be powered by the new Rolls Royce Trent 1000 engine. Air New Zealand is the first airline in the world to place an order for engines to power the new Boeing 7E7.

The Boeing 7E7 would use up to 20 per cent less fuel than other aircraft of its size. It would travel at speeds similar to today's fastest wide bodies and feature innovative technology that will give passengers great comfort, Air NZ said.

The 7E7 would also carry up to 50 per cent more cargo than today's similar size aircraft.

Air NZ said its decision to secure rights to purchase a further 42 aircraft reflected its belief in the potential to expand its passenger and cargo business into new long-haul destinations and increase traffic from existing core routes.

"The purchase rights will give us the ability to choose from a range of aircraft types that best suit our long-haul business as it develops in the future.

"The aircraft options will include the Boeing 777-200 ER, 777-200 LR, 7E7 and the 777-300 ER, which could replace our Boeing 747s in about a decade."

Air NZ's long-haul fleet comprises 10 Boeing 767s and eight Boeing 747s.

By early 2007 the fleet composition was expected to be eight 777-200ERs, seven 747s and five 767s, as leased aircraft were returned as contracts expired, the airline said.

"To put this into a passenger and cargo context, Air New Zealand's long-haul fleet currently consists of 5408 available seats and 268 tonnes available capacity across 18 aircraft.

"By early 2007, the fleet will consist of 6466 available seats and 291 tonnes available capacity across 20 aircraft.

"This represents a 20 per cent increase in seats for long-haul aircraft."

Air NZ senior managers had spent 18 months evaluating aircraft options available from Boeing and Airbus.

The airline said that "on balance the Boeing aircraft best fits our long-haul and business needs. This same exhaustive process two years ago found that the Airbus A320 was the best fit for our short-haul needs..."

Air NZ is 82 per cent owned by the Government after being bailed out in 2001. Its shares last traded at 41c before the trading half, compared with a year high of 64c and a low of 38c.

Mr Norris said Air NZ would fund the purchases internally.

"We have -- within our existing resources and forecast cash flows -- the ability to fund these purchases. With some bank debt and financings, which we have no doubt that we will be able to raise, it's well within the servicing capabilities of the company," he said.

However he also said the company also planned to take up the option of $150 million of extra funding offered by the government in addition to its $885 million 2001 bailout of the airline.

"We've always said that we wish to raise that additional equity at some point in time and it is still our plan to access that additional $150 million from the New Zealand government and at the same time have a pro rata issue of rights to existing shareholders."

- NZPA