AIR - Air NZ.

**blackcap** · 24-08-2018, 09:03 AM

Originally Posted by winner69

Dreamliner to Shanghai turned back to AKL this morning

Not good is it, for the PR, people's feeling of safety, and also the huge cost that AIR faces having to re book all those passengers that were going on to other destinations. How long is this issue going to go on for? My partner is flying Vancouver to Auckland shortly but not on an AIR plane but one they have hired for the time being. Hope the service is up to usual standards. Hope AIR have some good insurance to get back all their lost income and also lost reputation and loyalty...

**iceman** · 24-08-2018, 09:10 AM

Chris admits it has been a tough year, or SUBOPTIMAL, with the Dreamliners :-) https://www.nzherald.co.nz/business-...lery_id=197366

I was on a flight from Auckland to Nelson a couple of weeks ago. We sat onboard for nearly 2 hours because of overloading of luggage, while they moved the luggage backwards and forwards. In the end they cancelled the flight because they couldn' t sort it out and the full plane load of people was told to go back inside and book another flight. Pilots and crew were appalling.

**dobby41** · 24-08-2018, 09:33 AM

Originally Posted by iceman

I was on a flight from Auckland to Nelson a couple of weeks ago. We sat onboard for nearly 2 hours because of overloading of luggage, while they moved the luggage backwards and forwards. In the end they cancelled the flight because they couldn' t sort it out and the full plane load of people was told to go back inside and book another flight. Pilots and crew were appalling.

That just sounds crazy. Cancel the flight because they can't work out where to put the bags!

**iceman** · 24-08-2018, 09:39 AM

Originally Posted by dobby41

That just sounds crazy. Cancel the flight because they can't work out where to put the bags!

Yes it is and you can imagine the anger from passengers, including yours truly. I'd just flown in from London (with AIR) and ended up flying via Wellington to Nelson extending my trip by 8 hours beyond schedule. Have never had service like that from any airline. Appalling.

**Beagle** · 24-08-2018, 09:41 AM

That's it, keep up the negative talk folks, lets get this down to $3.00 and then pounce ! Might wait another day or two for the analyst recommendations to work their magic.

**Arbroath** · 24-08-2018, 10:25 AM

Originally Posted by Beagle

That's it, keep up the negative talk folks, lets get this down to $3.00 and then pounce ! Might wait another day or two for the analyst recommendations to work their magic.

FY19 might prove a difficult year but I'd love AIR to retreat as the cashflow/dividends in FY20-22 could be crazy big but a cost base of say $2.50-2.80 would seal the deal for me....

**winner69** · 24-08-2018, 10:26 AM

Originally Posted by iceman

Chris admits it has been a tough year, or SUBOPTIMAL, with the Dreamliners :-) https://www.nzherald.co.nz/business-...lery_id=197366

I was on a flight from Auckland to Nelson a couple of weeks ago. We sat onboard for nearly 2 hours because of overloading of luggage, while they moved the luggage backwards and forwards. In the end they cancelled the flight because they couldn' t sort it out and the full plane load of people was told to go back inside and book another flight. Pilots and crew were appalling.

And they got a bonus for that ....

**Beagle** · 24-08-2018, 11:35 AM

Read the behind the paywall NBR article on this and have also read the FAA release when they reduced the ETOPS rating on RR powered Dreamliners.

What is now (sadly) clear is this ETOPS reduction is costing AIR $30-40m per annum as flights to North and South America cannot be undertaken with these aircraft and some flights to Asia are also affected. Asia flights may involve a suboptimal route to stay within range of a diversionary airport to meet new ETOPS requirements.

Thoughts.
1. It is now clear that AIR are not getting any compensation from RR for the flight restriction impact of this amended rating. I think this is extremely disappointing.
2. What's clear from the behind the paywall article on NBR is that RR are really, really struggling with this issue. Originally the engines were all to be inspected by April 2018. RR have over 300 of these engines in service and are now talking 12 months before engines come back...wasn't especially clear in the NBR article but what is clear is this issue is "sticky".
3. The analyst on NBR thought as this $30-40m was a one off its ok to treat it as an extraordinary item and ignore it going forward, (and to be honest that was my thinking yesterday too)
4. Reflecting on this overnight and recalling the text of the FAA ETOPS rating change I recall distinctly that renewal of 340 min ETOPS is by no means a certainty and it is very clear this will take quite some time.

In my opinion there is a chance that the better rating may never be achieved again which would render the dreamliners as sub optimal for AIR's requirements going forward.
More likely it will take several years for RR to prove the newly designed replacement components are reliable. We have discussed on here before how sometimes problematic engines can go on to be exactly that despite changes in components. I think there is a real chance of that.

Best case in my opinion is that extended twin operating rating is restored in about 3 years. Impact in the meantime is about $30-40m per annum, about 3 cps in annual earnings. Obviously if the rating is never restored the impact on earnings is very sticky.

I think there's about a 50/50 chance the rating doesn't get restored. I have lowered my valuation of AIR by 15 cps. I see fair value at $3.20 cum dividend, $3.09 ex divvy. I am okay to modestly increase my stake at $3.20 cum dividend but that's a yield story at that price and its no bargain in my view, just fair value there.

I also think snow leopard made a good point recently on fuel.