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Moody's changes Air NZ's ratings outlook


Monday 21st March 2011

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Moody's Investor's Service has changed its outlook on Air New Zealand to negative, from stable, as a result of earthquakes in Christchurch and Japan, on top of escalating jet fuel prices.

The ratings agency did affirm the airline's Baa3 senior unsecured issuer rating, which Moody's said was supported by Air New Zealand's dominant position in its core domestic market, strong liquidity and currently solid financial metrics relative to its major global peers.

The rating also benefited from the implicit support and ownership by the Government, Moody's said.

The rating outlook could revert to stable if the current high level of uncertainty in the company's operating environment, including demand conditions in New Zealand and on other affected routes, stabilised, along with a moderation in outlook for jet fuel prices.

However, it said more negative rating pressure could evolve if there was evidence of sustained weakness in Air NZ's financial profile.

The rating could also be pressured if the airline's liquidity deteriorated meaningfully or should the company pay excessive dividends to its shareholders, Moody's said.

The outlook change to negative reflected heightened operating uncertainty and incremental effects of recent earthquakes in Christchurch and Japan.

On top of that was the already escalating price of jet fuel in recent months, recently climbing to more than $US130 a barrel, Moody's vice president and senior credit officer Ian Lewis said today.

The earthquakes created significant uncertainty for the airline's earnings at least in the short to medium term, reducing demand on some key routes.

"While the company has performed well and exited the GFC (global financial crisis) with a solid balance sheet and strong liquidity, the magnitude and duration of these simultaneous and exogenous factors is outside the company's control," Mr Lewis said.

Last week, Air New Zealand said it no longer expected to be profitable in the second half of the financial year.

The financial impact of the Christchurch earthquake was more severe than had been expected, while the disaster in Japan had hit revenue in that important market.

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