The government has increased how much money Air New Zealand can borrow, as it defers its plan for a capital raise until September.
The national carrier had initially planned to tap shareholders for a cash injection around June.
However, the company has delayed that until late September as it assesses recent developments such as the vaccine roll-out, an extension to the airfreight capacity scheme, and the opening of a trans-Tasman bubble.
“These developments are good news and fundamental to Air New Zealand’s return to success, but the storm hasn’t cleared yet,” Air New Zealand chair Therese Walsh said.
To ensure the company has sufficient cash reserves until then, the government has increased loan to the airline by $600 million to a total of $1.5 billion.
The cost of the facility has also been reduced, with the first tranche of the loan almost halved from between 7 and 8 percent per annum to 3.5 percent, and the second tranche cut from about 9 percent to 5 percent.
So far, Air New Zealand has only drawn down about $350m on the loan, and has not tapped it since the end of February.
Walsh said the government loan and the capital raise were vital for the airline’s future.
“All amounts outstanding under the loan will be repaid from the proceeds of the proposed capital raise.”
“The Board expects the final capital raise structure to be a mix of debt and equity,” she said.
Analysts have suggested the airline could raise anywhere between $700m to more than $1bn.
The airline also suspended its estimates of how much cash it was burning through, previously given at between $60m-$80m, as it assessed its outlook.
Finance Minister Grant Robertson said the changes to the debt facility would allow the airline to benefit from the increased activity as borders re-open and travel and trade movements increased.
“The Crown’s role as majority shareholder has been a major source of stability for the national airline during a very difficult time.”
The head of research at broking firm Forsyth Barr, Andy Bowley, said the delay made sense.
“The delay will provide more accuracy around the size of the raise and will reduce the risk of under-funding, in our opinion. Air New Zealand’s immediate capital needs are more than accounted for in the revised terms of the government funding facility.”
He said the cash burn would likely improve substantially with the new finance arrangements and the lift in forward bookings.