Stock takes: Air New Zealand's multimillion-dollar silver lining

Air New Zealand couldn't resist a little gloating when announcing the commitment to buy and lease 14 Airbus A320s to replace its Boeing aircraft on domestic routes.

Although it is not releasing details of the deal, the airline said it had got $1.4 billion worth of aircraft at bargain prices, buying at the bottom of the cycle for airlines and plane makers.

UBS analyst Jason Bloom is picking Air New Zealand got a discount of between 40 and 50 per cent on each plane it is buying. Off the peg, they sell for just on $100 million, including cabin fitout.

"You can make significant amounts of money if you negotiate at the right time, which they've done."

The three-year delay for the long-haul Boeing 787 Dreamliner also played into the airline's hands, Bloom says, allowing it to play Airbus off against its rival which is in a slightly weakened position.

The deal will see capex take off at Air New Zealand which has new Boeing 777-300s arriving next year. The airline expects capex to rise from $200 million this year to more than $600 million by 2012, and those figures exclude the A320s.

Bloom says they will add around another $50 million a year. Other carriers who committed to the A380 super jumbo have been spending heavily. "Air New Zealand has essentially had that [capex] holiday - they've been quite fortunate with the timing of the financial crisis."

MUCKING IN

Taranaki-based rural services company Allied Farmers turns 120 this year, but the anniversary hardly finds it in good shape.

The company reported a $7.1 million June year pre-tax operating loss but a bottom line loss of $34.2 million - largely due to a $20.5 million write down in the value of finance subsidiary Allied Nationwide Finance, which also required loan provisioning of $9.7 million. Ouch.

We hear managing director Rob Alloway, whose Allied Capital is the biggest shareholder, is "rolling up his sleeves" and working towards putting things right.

"As a shareholder I wasn't satisfied, particularly with the annual result, so in discussion with the board decided to step in and clean a few things up," he told Stock Takes yesterday.

It can't be easy. Among the company's problems, it recently revealed it had breached its banking covenants although Westpac has fortunately decided to overlook this for the time being.

The company said it had secured $7 million in new capital from "a large professional investor" but had yet to say who that was.

Some say Allied's problems, which were not going be fixed by a mere $7 million, stem from its move away from being mainly a stock and station agent into a more aggressive finance company business.

Alloway, fresh from a meeting with ratings agency Standard & Poor's yesterday, said the company was making "some strong progress operationally".

There's no questioning his commitment. Apart from his 14.4 per cent stake in Allied Farmers, Alloway is working as managing director without drawing a salary.

Allied Farmers shares, which were at $1.20 this time last year, were yesterday trading at 27c.

BIG POWER FOR BIG OIL

A report commissioned by two power companies has - unsurprisingly - concluded electric vehicles have a bright future in New Zealand. The plug-ins will certainly provide a profitable future for electricity generators who will step in where oil companies leave off.

The report is a rare public collaboration between listed Contact Energy and taxpayer-owned Meridian Energy, and finds within 10 years a third of the vehicle fleet will be electric-powered.

Over 50 years the country could save $9.4 billion on petrol and $1.5 billion on diesel, the report says. Drivers plug in overnight to recharge their cars, a boon for the gentailers, who sell more electricity at this off-peak time while not requiring the addition of new plant.

The news is not all bad for those driving fossil fuel guzzlers. Assumptions from a Ministry of Transport model put the price of a litre of petrol in 2027 levelling off at $2.44 in today's dollars.

TOMORROW NEVER COMES

Market watchers are following Wellington Drive Technologies' director and former chairman Ray Thomson's on-market purchase of shares in the company closely.

Does the market veteran's apparently renewed enthusiasm for the developer of high-efficiency, ultra-low-noise electric motors signal it is on the cusp of greatness?

"When you've got someone like Ray Thomson buying shares on-market, that is fascinating," says our source.

But are we holding our breath?

Stock Takes would refer you to comments from Business Herald columnist Brian Gaynor observing that Wellington Drive shareholders were losing patience and the company would have to deliver within a six-month time frame to justify its market capitalisation. That was back in 2001.

WDT shares were at 9.8c yesterday.

NOT-SO-HOT PROPERTY

All is not well in the world of property, despite housing's resurgence. NZX-listed Kermadec Property Fund has suffered two tenant failures this year.

As Jeremy Simpson of ForBarr notes in a report just out, the company's $130 million portfolio has a 7 per cent vacancy rate.

The portfolio was 96 per cent tenanted but has dropped to 93 per cent.

Simpson reckons investors should go for bigger, less-geared vehicles than the eight-property Kermadec which he notes is trading at a big discount to asset backing - $130 million of listed property in a fund valued (market cap) on the NZX at just $43 million.

FARMERS FEEL SQUEEZE

Recent months have seen a fair bit of chatter about nervousness at the Reserve Bank and elsewhere around the level of bank exposure to the rural sector, particularly dairy farms.

Stock Takes hears the Reserve Bank has quietly increased the amount of capital banks must hold to back their lending in this sector.

PricewaterhouseCoopers banking partner Paul Skillender tells us the new requirements, effectively a 20 to 40 per cent increase in the amount of capital on every loan, come into force in June next year.

Skillender sees the move as resulting in "aggressive repricing" - that is, rates going up by one to two percentage points, a reduced supply of credit or possibly even a bit of both. All of this is in addition to any other changes in interest rates coming from either market or other regulatory changes.