Strong dollar puts wind beneath Air NZ's wings

By CHRIS DANIELS

A return to dividends and a billion-dollar bank balance show Air New Zealand is in good shape and ready for the inevitable next challenge.

Unveiling the annual result yesterday, airline chairman John Palmer said the company intended paying a dividend next year of between 25 per cent and 35 per cent of after-tax profits.

A $200 million capital raising is still on the agenda - but not until after regulators' verdicts on the planned alliance with Qantas.

The strength of the dollar gave the company some relief from soaring oil prices. In fact, the fuel bill for the year to the end of June was down $100 million, despite a 15 per cent increase in the cost of fuel.

Air NZ is expected to today announce an increase in the fuel surcharge on air ticket prices, to at least match main competitor, Qantas.

Chief executive Ralph Norris said high fuel prices were a significant concern. "The problem is not only that prices are high - they have been this high before in real terms - but the outlook is for an extended period of high prices, not just a temporary spike."

The high dollar that helps with the gas bill also hinders when tickets are bought overseas, leading to the drop in revenue for the year.

Another issue is the dispute with Hong Kong tax authorities, who say Air NZ owes it $107 million in unpaid back taxes, relating to its subsidiary company that it used for buying and selling aircraft.

Norris said "appropriate provision" had been made for the tax bill but, due to sensitive negotiations with tax authorities, the amount would not be made public.

Norris hinted at tough negotiation with unions and other employees, as part of the airline's cost-cutting drive.

Analyst Peter Sigley, of Goldman Sachs JB Were, said the result was well within market expectations and "OK" for earnings.

"The strength of the underlying cash flow is probably the story in the result, rather than the numbers themselves," said Sigley. "You'd have to say, 'so far, so good'."

The reduction in debt was excellent, with the airline's gearing ratios now 52.6 per cent, down from more than 90 per cent in 2001.

A return to dividends, albeit at conservative levels, would strongly signal management was confident about the airline's outlook.

Air NZ shares closed down 6c yesterday at $1.86 - possibly on factors including fuel prices and the dilutionary effect on shareholders of the expected rights issue.

Sharing it out

Air New Zealand shares were this week consolidated one-for-five.

A new voluntary scheme lets those with less than 500 shares either sell out or buy more without brokerage costs.

Dividend payouts are expected to resume next year.

A dividend reinvestment scheme will let shareholders get new shares at market value or a small discount instead of cash.