Air New Zealand has secured standby funding of up to NZ$900 million ($511 million) from the government to support the airline as it battles the coronavirus outbreak.
The government, which owns 52% of the airline, said on 20 March that the deal allows the carrier to keep operating and will protect essential routes. The carrier can call on the loan should its cash reserves fall below a minimum threshold.
“Without this intervention, New Zealand was at risk of not having a national airline,” finance minister Grant Robertson said in a statement.
New Zealand tightened its travel restrictions on Thursday, closing its borders to non-citizens and those without permanent residency. Many other countries worldwide have also implemented travel restrictions, decimating demand and forcing airlines to ground planes.
The airline had already announced major capacity cuts, including 85% of its long-haul network, on March 16, and warned of redundancies. The domestic network has been safeguarded by the loan deal, the government said today.
Robertson added that the government was working with Air New Zealand to help affected employees, such as by redeploying staff to help with the medical response to the crisis.
“While today’s action means the company can continue to operate, given the unprecedented shock to the global aviation industry caused by Covid-19, Air New Zealand has advised that there will unfortunately be job losses as capacity is cut,” he noted.
The carrier says in the latest statement it is now working with the government to maintain key services, such as cargo and repatriation flights.
“Those services will be provided for under separate commercial arrangements to be negotiated in the future on an arms’ length basis between the airline and the government.”
It adds that it is “greatly appreciative” of the loan.
Chairman Therese Walsh says in a statement: “The government and treasury moved swiftly to ensure that Air New Zealand had financial certainty as demand for flights domestically and internationally has rapidly fallen due to travel restrictions implemented by countries around the world.”
As part of the conditions for the government help, Air New Zealand cancelled an interim dividend totalling NZ$123 million that it announced on 27 February and will not make further payments to shareholders while the loan is available.
The NZ$900 million loan will be provided in two tranches – one of $600 million with an expected interest rate of 7%- 8% per year and a second of $300 million with an expected interest rate of 9%. It will be available for a period of 24 months. Should the loan still be available after 12 months, the interest rates will increase by 1%.
Air New Zealand shares ended their self-imposed trading halt on Friday and were down 42% at midday after the announcement of government help.