Air New Zealand expects a “substantial reduction” in the compensation received for ongoing engine reliability issues, which it says will impact its financial performance for the year ending 30 June.
In an earnings guidance released 16 April, the airline says it now expects a full-year pre-tax profit of between NZ$150 and NZ$190 million ($88.8-112 million).
Given that the Star Alliance operator had recorded a pre-tax profit of NZ$155 million for the first half of the financial year, its latest guidance suggests it could post a loss – or a small profit – in the second half of the year.
On the engine reliability issues, Air New Zealand says maintenance timeframes “remain unpredictable”. The airline has two problematic engines in its fleet: the Pratt & Whitney PW1100Gs that power its Airbus A320neo-family fleet, and the Rolls-Royce Trent 1000s for its Boeing 787 fleet.
It expects aircraft-on-ground numbers to remain high - as many as 11 jets - despite its efforts to secure additional leased engines.
“The airline is engaged in ongoing negotiations with engine manufacturers regarding appropriate levels of compensation for unserviceable engines, and accurate timeframes for engine returns. These discussions continue to be complicated, but Air New Zealand is exploring all possible avenues to ensure a fair outcome,” the carrier adds.
Adding to its woes, the “flexibility” in compensation afforded by the enginemakers – that affected engines retained on-wing were treated as unserviceable – “has now ended”.
“Accordingly, decisions made by the airline to retain engines ‘on-wing’ for the same reasons as in the first half [of the financial year], result in lower compensation in the second half. As engine manufacturer compensation is based on the number of unserviceable engines, rather than the number of grounded aircraft, compensation received may not directly reflect the total number of aircraft on the ground,” states Air New Zealand.
It now expects to receive compensation of around NZ$35-40 million, significantly lower than the NZ$94 million it disclosed in the six months to 31 December 2024.
The engine issues – and the consequent aircraft grounding – has deeply impacted Air New Zealand’s operations. In February, the airline forecasted a 5% drop in international capacity through end-June, while domestic capacity would be down 2%.
It says: “Adjusting the business to reflect fewer aircraft in the short-term introduces considerable complexity, especially as engines begin returning to service and capacity ramps up again.”
Furthermore, Air New Zealand says it is also facing “uncertainty” in it “broader demand environment” in the wake of the Trump administration’s tariff policies, echoing similar sentiments from carriers in North America.
