Air NZ fleet upgrade wins wide approval

By DANIEL RIORDAN aviation writer

Air New Zealand's decision to upgrade its fleet with Airbus planes has been well received in the marketplace, although the impact of the deal on Qantas' ownership overtures to the national carrier are unclear.

Air NZ shares held steady yesterday at 65c after nudging a cent higher on Thursday when it said it would acquire up to 35 new planes from the Airbus A320 family over 10 years to replace its ageing Boeing short-haul international fleet.

Fifteen planes will be bought or leased over 4 1/2 years, and Air NZ has 10-year buying rights on another 20.

Air NZ said it would use existing resources for the US$400 million ($828 million) cost of the 15 planes.

UBS Warburg analyst Timothy Ross said the decision signalled a distinct change in heart for the airline. "Obviously things are going well for them, switching from a defensive footing to more expansive measures."

The deal made economic sense.

"They're taking tired old aircraft and swapping them for brand new aircraft," he said. The cost was an extra $1.5 million a year in lease fees - "and that's buttons" - and at the same time, unit operating costs would be reduced by 15-18 per cent.



Air NZ will sell some of its Boeings and replace them with the wide-bodied Airbuses, and sign new lease agreements with Airbus to replace leased Boeings.

Ross said the airline would not feel any significant fiscal impact till the June 2005 year. Based on the airline's Tasman passenger flow, he estimates that the savings could be $135 million by 2007.

Air NZ also expects to earn extra by servicing Airbus planes for other airlines, once its engineering division is familiar with the new planes.

Macquarie Equities analyst Arthur Lim said the aircraft decision was another indication of the airline's improving financial health.

Most of the market was sceptical in January but the aviation industry had recovered, inbound tourism had picked up, and the higher New Zealand dollar was helping.

But, Lim said, the better performance did not mean Air NZ could afford to ignore Qantas' overtures. Qantas is understood to be seeking a significant stake in the 82 per cent Government-owned airline.

Lim said Air NZ still had to address its lack of feeder traffic in Australia since Ansett's demise.

Centre for Asia-Pacific Aviation managing director Peter Harbison said the Airbus A320 purchase arguably would give the national carrier more freight opportunity for its type of low-cost operation than Boeing's 737 new generation planes.

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