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Air NZ loses momentum in November

By Phil Boeyen, ShareChat Business News Editor

Wednesday 19th December 2001

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Air New Zealand (NZSE: AIRVA) says it continues to face very difficult trading conditions with lower international passenger loads and a disappointing performance in November.

Speaking at the airline's annual general meeting on Wednesday the company's executive director, Roger France, told shareholders that while the airline traded ahead of forecasts in October, November did not stack up as well as hoped.

Aside from concerns in the international business he says the company is also facing lower yields on domestic routes due to competitor activity.

"Whilst the decrease in fuel costs is helping, our latest forecasts to the end of the year indicate that costs benefits may not be great enough to offset the declines in passenger revenue that we are seeing.

"In summary, the business is still facing very difficult trading conditions. Our plan targets are not soft - they will be difficult to achieve and success is not assured. We are committed to doing every thing we can to make them a reality.

The main item on the meeting's agenda was approving a recapitalisation plan, which entails the Crown taking a majority stake in return for a minimum of $885 million dollars with possibly another $150 million further down the line.

Despite the size of the tax-payer funded bailout Mr France has warned shareholders that the recapitalisation is not a panacea for the company's ills.

"The airline industry, around the world, is facing the worst trading conditions in living memory. Air New Zealand is not insulated from this situation - notwithstanding its strong domestic position.

"The recapitalisation plan to be voted on today does no more than provide a bare survival platform, on which the company can be restored to long term health and profitability. We need to act quickly because, given the current environment, it will rapidly become a burning platform."

Mr France says the company's short to medium term priority is to gain financial flexibility through cost reductions, asset sales, and debt reduction.

"Following recapitalisation, the company's gearing ratio - that is the ratio of debt to debt + equity - will be at 81%, which is obviously far too high. At that level, it leaves the company dangerously vulnerable to any further external shocks or performance downturns.

"The board and management believe that a gearing ratio of between 50% and 60% is the desirable level for the company."

Mr France says the various initiatives contained in the airline's business plan are designed to achieve the 50-60% gearing ratio over time, and discussions have commenced with unions over labour savings after reducing management numbers.

In the short-term the company has changed schedules and commenced a programme of asset sales but Mr France says the second focus of management activity moving into 2002 is the long term strategic positioning of the business.

"The airline has some wonderful assets - its young fleet, respected brand, and acknowledged reputation for world class, quality customer service. These need to be deployed in a business model that can create long term shareholder value.

"Our business requires re-invention so that it operates in closer alignment with real - rather than assumed - customer needs. And we need to drive complexity - which decreases responsiveness and increases cost - out of the business."

Air NZ is yet to appoint a new CEO after former Qantas executive, Gary Toomey, left a few months ago.

The airline's split share classes, A and B shares, are due to be replaced by one share class from the start of next week.

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