Forum Archive Index - May 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
>AIR want to do more write offs as this year is shot for them 
>anyway - may as well get all the bad stuff out of the
>way.
> 
>However isn't a company ultimately judged (which is reflected in the
>share price) on the earnings stream over an extended period of time.
> 
>Snoopy and others who have studied AIR intimately - any idea what
>these one off charges might total? 
>
>
No real idea, but I'll try an educated guess.  There is an item on 
the balance sheet which reads 'Finance Leases Receivable', which 
shows a $72million dollar charge AirNZ was expecting to get this 
financial year.  Sub note 14 in the y2k annual report contains a 
note.

"The Group is party to aircraft leasing arrangements which involve 
external leasing entities as both lessor and lessee."

I would imagine a fair chunk of that is income they expected to get 
from Qantas NZ for leasing the whisper jets.  Leases carried on the 
balance sheet are valued at $62.4million.

Then there is the matter of the $350m to be returned to the company 
with the sale/leaseback deal announced for the 767-200s.   The 2000 
Air New Zealand annual report values 23 767s (both 200s and 300s) at 
an aggregate value of $1.218m or "$529m for 10".   Maybe there was a 
write down there?

Otherwise I'd imagine anything else would be something on the 
Australian side.  Extra spares for the 767s?  Some sort of 
extraordinary right off of Goodwill?   Can they even do that?   
Perhaps some accountant reading this versed in these matters might 
like to comment if writing off goodwill faster is legally possible?  
I'm guessing here!
>
> Snoopy - have you updated your earnings forecast in light of the
> recent events?
>
Please refer to my post of April 7th.

1/INTERNATIONAL MARKETS

I'll stick with my prediction of an improved profit contribution of 
$149m

2/NZ DOMESTIC MARKET

If we assume AirNZ had 70% of the passenger market before Qantas NZ 
collapsed, I'd guess they must be picking up at least half of the 
failed airlines traffic.  Last years domestic revenue was $585m 
based on 70% market share, which bumps revenues up to $710m if you 
assume they have 85% of the market now.  That $125m extra isn't pure 
profit, as new staff have been taken on and FreedomAir's domestic 
services set up.   But they might easy be creaming off around $60m in 
windfall earnings, which would half be wiped out by the reduction in 
lease payments they won't be getting from Qantas NZ for their whisper 
jets.   Net result, +$30m.

3/AUSTRALIAN DOMESTIC MARKET

The report in the Sydney Morning Herald you quoted Peter suggested 
Ansett is facing a $300m loss this year.   With the 767 grounding 
over the busy Easter period and various other disruptions since I'll 
have to assume that whatever journo came up with that figure has done 
his homework.  This is a $350m turnaround from last year.  Net result 
-$350million.

4/JET FUEL

The currency is showing some improvement, but not much!

$504.4m xUS50c/US42c x$23barrel/$21barrel= $657m.

This is still around $200m more than paid last year, now that the 
hedging that was cushioning the price rises has gone.    Net Result 
-$200million.

5/AIRCRAFT LEASES

There are new lease costs to pay for those 10 767-200s that were 
sold to rasie capital.   I would imagine the company doing the 
leasing would want a payback on the $350m they shelled out within 
8-10 years with a profit margin on top.   Perhaps $35m in the first 
year,  meaning $70m (finance charges and capital repayment) extra to 
be shelled out by Air NZ every year from here on in.  The current 
year contains 3 months of these new leases.

Add this to last years lease payment increase, adjusted for the 
expiration of hedging, and you get:

$70m(3/12) + ($305.4 x 0.19) = $75m.  Net Result -$75m

SUMMARY OF FORECASTS

If we add the additional extra profit adjustments based
on points 1-5 above we get:

+149+30-350-200-75= $446.0 less profit than last year.

Subtract this from last years operational profit of $178m:

$178m-$446m= at least -$268m projected loss for the year ended June, 
or more if there are further Australian write downs.   The sell off 
of planes for $350m more than cancels this out, so there is an 
improvement in the company cash position.

If exchange rates and market conditions do not substantially change 
then Air NZ has bought themselves another 3-4 months only by flicking 
off the older 767s.   Judgement day is still on the horizon. SNOOPY

Disclosure: Hold AIR

---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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