AIR - Air NZ.

[Joshuatree]

Thanks Roger. heres a bit of history re the Govt investment if anyones int.
I guess they will want to sell down at some point.Hey flying within NZ might become more reasonable if they did ehhh
The Crown's Investment in Air New Zealand (Part 1) (16 May 2016)
The Crown's Investment in Air New Zealand (Part 2) (18 May 2016)
The Crown's Investment in Air New Zealand (Part 3) (20 May 2016)

8.4% return per annum

"Ignoring the time value of money, the Crown invested $1,042 million in Air New Zealand, has received $1,234 million of cash, and currently holds an investment in the company worth $1,341 million.
That might sound like a significant return, but it was over a fourteen year period. To put that into perspective, if you invested $1,000 in a bank term deposit that paid (say) 5% interest (after tax), and reinvested all of the interest payments, then after fourteen years you would have almost $2,000 in the bank.
The attached spreadsheet shows the details of the IRR calculation which, taking account of the time value of money, tells us the Crown's return on its investment in Air New Zealand was 8.4% a year"

[couta1]

The 8.4% doesn't take into account the XOS divvy last year.

[777]

8.4% return per annum

"Ignoring the time value of money, the Crown invested $1,042 million in Air New Zealand, has received $1,234 million of cash, and currently holds an investment in the company worth $1,341 million.
That might sound like a significant return, but it was over a fourteen year period. To put that into perspective, if you invested $1,000 in a bank term deposit that paid (say) 5% interest (after tax), and reinvested all of the interest payments, then after fourteen years you would have almost $2,000 in the bank.


The attached spreadsheet shows the details of the IRR calculation which, taking account of the time value of money, tells us the Crown's return on its investment in Air New Zealand was 8.4% a year"

You should have another look at your example. You can't ignore the dividend but include the interest to justify the result you want.

[Joshuatree]

Thanks guys and not trying to justify anything. How much difference does that make over 14 years?

[dobby41]

Well said, and the Govt have made over 3 times what they put in bail Air out, this company is now a cash cow for them and provides valuable money for the benefit of all taxpayers.

Maybe they should invest in other things also then.
If they played the market enough we wouldn't need taxes.
Where do you draw the line?

[couta1]

Maybe they should invest in other things also then.
If they played the market enough we wouldn't need taxes.
Where do you draw the line?

They have currently assigned ACC to play the market and they do it with quite a lot of success. How many companies on the NZX has ACC not taken a stake in at one time or another.

[dobby41]

They have currently assigned ACC to play the market and they do it with quite a lot of success. How many companies on the NZX has ACC not taken a stake in at one time or another.

I'd be fine with ACC or the Cullen fund holding AIR.
Not the same as the Govt itself - different mandate.

[Joshuatree]

Heres the article i extracted from. hard to criticise it.

The Crown's Investment in Air New Zealand

Published 16 May 2016
Part 1 of 3 of a Treasury Staff Insights: Rangitaki article by Juston Anderson
On 18 January 2002 the New Zealand Government invested $892 million in Air New Zealand, giving the Crown an 82% ownership stake in the company. A further $149 million was invested in Air New Zealand in a rights issue in December 2004, taking the total invested by the Crown to $1,042 million.
So what financial returns has the Crown received for this investment?

Using an internal rate of return (IRR) calculation, I estimate that the Crown has received a return of 8.4% per year^[1] from its shareholding in Air New Zealand, as at 9 May 2016.
Below, I explain how I arrived at that figure.
Two subsequent blog posts will look at some implications of this analysis:

• how movements in Air New Zealand's share price affect the IRR calculation
• separating the IRR into realised and unrealised returns, and why this matters
• the impact on the IRR of the Crown's sale of some of its shares in Air New Zealand in November 2013

Is 8.4% a "good" return?

An internal rate of return can be used to compare two or more investments to each other; it doesn't tell you whether an investment was "good". And "good" is not really a term that an investment advisor would use, as it is a value judgement.
You could argue that 8.4% is greater than the Crown's cost of borrowing over the period from 2002 to today, and on that basis the investment was "good". This would not be a sound argument, for a number of reasons - for example, it ignores risk.
A better benchmark than the cost of borrowing would be to consider market estimates of Air New Zealand's cost of equity. This is the return that market analysts think that shareholders in a company would need to receive, to compensate them for the risks of investing in that company. A few years ago, market estimates of the cost of equity for Air New Zealand were between 12% and 16%, somewhat higher than the calculated IRR.
But of course the Crown is not a market investor, and the Crown's motivations for investing in Air New Zealand were not purely financial. The Crown had other reasons for investing^[2]. And the Crown did not invest on the expectation that it would sell the shares later and make a profit, as a private investor buying shares would.
Calculating the internal rate of return

To work out an internal rate of return on an investment, you need to know four things:

• how much was initially invested
• any cash returns you have received from the investment
• the current market value of the investment, and
• the dates when all of the above happened.

Returns from Air New Zealand

Since January 2002, the Crown has received around $869 million^[3] in dividends from Air New Zealand. The dividends are shown in the graph below.
Chart 1: Dividends to the Crown from Air New ZealandSource: Own calculationsThe blue bars are ordinary dividends, while the red bars show special dividends. The green bars are dividends paid on Air New Zealand's redeemable preference shares, which were issued to the Crown as part of its investment in Air New Zealand in 2002. They converted to ordinary shares in January 2005.
In November 2013, the Crown reduced its shareholding in Air New Zealand by selling around 221 million shares (reducing the Crown's shareholding in the company to around 53%) for which it received $365 million of cash.
So the total cash that the Crown has received is $1,234 million^[4].
The market value of the investment

The Crown's shareholding in Air New Zealand had a theoretical^[5] value as at 9 May 2016 of around $1,341 million^[6].
The dates when this happened

We need to know when all of this happened so that we can take account of the time value of money. This is the principle that a dollar today is worth more than a dollar at some point in the future. You could invest that dollar now, and with the income from the investment, you would (hopefully) have more than a dollar in the future. For the same reason, a dollar that you received in the past is also worth more than a dollar received today.
Ignoring the time value of money, the Crown invested $1,042 million in Air New Zealand, has received $1,234 million of cash, and currently holds an investment in the company worth $1,341 million.
That might sound like a significant return, but it was over a fourteen year period. To put that into perspective, if you invested $1,000 in a bank term deposit that paid (say) 5% interest (after tax), and reinvested all of the interest payments, then after fourteen years you would have almost $2,000 in the bank.
The attached spreadsheet shows the details of the IRR calculation which, taking account of the time value of money, tells us the Crown's return on its investment in Air New Zealand was 8.4% a year.

[couta1]

I'd be fine with ACC or the Cullen fund holding AIR.
Not the same as the Govt itself - different mandate.

Different mandate but the same end result, more money available for average kiwis to obtain essential services.

[dobby41]

Different mandate but the same end result, more money available for average kiwis to obtain essential services.

Well yes and no.
If the ACC are investing then the return goes to the ACC - not hip replacements.
If the Cullen fund does it then the returns will be used some time in the future for people retirement.
It could be said that it means the govt then has money available for hip operations since they don't have to supply the money to ACC etc themselves.