Air NZ becomes cash cow
A report in The Dominion Post in New Zealand today says that the NZ Government is already sitting on a book profit of about $1.4 billion from its investment in Air New Zealand and that it could pocket more than $1 billion in airline dividends during the next three years, according to broker Forsyth Barr.
Rob Mercer, Forsyth Barr’s head of research, estimates the reinvigorated national carrier could pay about $1.32 a share, or 44 cents per annum, in dividends during the next three years without increasing debt.
The Government, which owns 76.7 per cent of Air New Zealand, would see its coffers swell by about $1.06 billion if Mr Mercer’s scenario panned out.
“It’s a pretty powerful position,” Mr Mercer said yesterday. “There’s a sweet spot in (airline) earnings globally and these guys have got very little demand on actually investing that back in their fleet.”
After using about $1 billion of taxpayers’ money to save Air New Zealand in 2001, the Government is already sitting on a book profit of about $1.4 billion given the recovery in the airline’s share price.
Mr Mercer said Air New Zealand was in the enviable position of having implemented a fleet upgrade when there was an international shortage of long-haul wide-bodied aircraft.
Eight new Boeing 777-200ERs fitted with the latest in passenger comforts, and similarly refitted 747-400s, have helped increase Air New Zealand’s passenger loads and investment returns, especially in business and premium economy class.
Newer planes should also limit maintenance costs.
However, UBS reckons a 68c, or 29%, rise in the airline’s share price over 10 weeks leaves little scope for an ongoing increase, with UBS downgrading its Air New Zealand rating to “neutral” from “buy”.
UBS analyst Wade Gardiner said that on a price-to-earnings ratio, Air New Zealand’s shares were trading close to those of international peers like Qantas.
Based on a price-to-earnings ratio of 12 times, he values Air New Zealand shares at $3.10 each but said high fuel prices remained a concern.
Mr Mercer values Air New Zealand shares at $3.36. They fell 10c to $2.95 yesterday.
Mr Gardiner forecasts a June-year profit of $181 million and Mr Mercer $187.1 million.
Report by The Mole and The Dominion Post
John Alwyn-Jones
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