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COVID-19 and the Aviation Industry 

by Kate Lane

Published: March, 2020

Submission: March, 2020

 



The impact of COVID-19 has thwarted many sectors, but none more than international aviation. Our own national carrier, Air New Zealand, has been severely affected and the recent announcement of the closure of New Zealand’s borders to all non-residents will only exacerbate the impact on this sector.


However, the airline confirmed this morning that the New Zealand Government (a 52% shareholder in Air New Zealand) is providing a $900m standby facility, to help Air New Zealand to cope with the coronavirus fallout. Finance Minister, Grant Robertson, commented to NZ Herald:


Air New Zealand has a unique and critical role in our economy and society. Also, the Government owns 52 per cent of the company, which means we have a responsibility towards it. We have acted swiftly to put this loan agreement in place and support our national carrier.”


He also stipulated that this agreement would ensure kiwis overseas could return home and that freight lines for pharmaceuticals could remain open to and from key international destinations.


Public details of the facility include:


  • standby facility in two tranches ($600m and $300m);
  • 24 month tenor;
  • an effective interest rate of between 7 and 8% for first tranche; and 9% for the second tranche, with a 1% step up for both after 12 months;
  • Conditions precedent to draw include cancellation of dividend (announced today) and agreeing an operating finance plan;
  • Other terms include a dividend stop, provision of security, Government to be entitled to require a capital raise to repay it after six months or convert it to equity;
  • drawable once cash reserves fall below a threshold; and
  • on arms’ length commercial terms.

The Government is also working with Air New Zealand to ensure that other key services can still be provided, such as repatriation flights and maintaining cargo lines.


Creditors of the airline will take comfort from this announcement, although it raises some interesting questions for unsecured creditors who will now rank behind the Government.


 



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