Air NZ to raise $186m

By ELLEN READ

Air New Zealand has warned that soaring oil prices and tough competition will hit profits as it disclosed plans to raise $186 million to help pay for a fleet upgrade.

The airline now expects full-year underlying profits to fall from $243 million to $220 million.

Nevertheless, Air NZ's shares rose four cents to $1.57, amid relief that the capital raising was lower than the $200 million flagged earlier. The cash will help pay for the long-range new Boeing 777s aircraft and refurbish existing planes.

"The market will be relieved in two senses," one analyst said.

"One is that the size of it [the rights issue] is less than anticipated and ... it's been coming for quite some time.

"We've been waiting for the details and, finally, they're out there so you know what you've got."

Air NZ chairman John Palmer told shareholders at the company's annual meeting in Christchurch that the airline would struggle to offset the effects of rising oil prices on jet fuel costs, the airline's second biggest expense after labour.

" ... while many airlines have experienced a lift in demand for travel, the high jet fuel prices will once again keep much of the airline industry in the red," he said.

Palmer said the company had been waiting for its proposed alliance with Qantas (which has been blocked by local regulators) and for the sale of Singapore Airlines' 6.3 per cent stake (completed earlier this month) before announcing the rights issue.

The offer is being run by First NZ Capital Securities. For every six shares held, investors will be able to buy one new share for $1.30. Convertible preference shareholders can buy one new share for every 30 held.

The issue opens on November 9 and runs until December 1.

The Government, which owns 82 per cent of the airline, has already said it will take up its full entitlement. This is valued at about $150 million.


Palmer reiterated plans to return paying dividends this financial year for the first time since March 2001. The payout will be around 25 to 35 per cent of after-tax earnings.

"The fact they've reiterated the policy will be regarded as positive," the analyst said. He expects Air NZ shares, which have sunk amid gloom over the ditched alliance with Qantas, to trade sideways for a few weeks as the extra supply caused by the rights issue is absorbed.

An outstanding issue remains the future of any alliance with Qantas. Last month, the two airlines abandoned plans for a tie-up when local regulators deemed it anti-competitive, although it later won Australian approval.

The plan is not totally scuppered, though, as talk of parts and maintenance sharing has been made public. Further plans are unlikely until the Australian watchdog releases details of its approval - setting out what is and isn't acceptable.

More details are expected with its interim result briefing in February.

Cash in hand

$186 million will be raised for a fleet upgrade.

The money will go towards paying for the new long-range Boeing 777s.

Investors will be given the right to a one-for-six share issue.

The issue will open on November 9 and close on December 1.