AIR - Air NZ.

[Daytr]

I had a small position which I only held for a few weeks. I rethought my position a little while ago & quit it for a small loss due to the amount of money being sucked out of the economy due to higher interest rates & not just here but globally. A mortgage broker I spoke to recently said that less than half his mortgage book had rolled onto the higher rate regime. I think discretionary spending on things like flights will be reigned in.

[silverblizzard888]

Probably not much room with this amount of spending planned.
https://www.stuff.co.nz/business/131...ofitting-fleet

Their spending is already accounted for in their financials. They have depreciation expenses in the region of $600-$700million a year which if you spread the announced $3.5 billion spending over 5 years it also magically equals $700 million which is their depreciation expense. So the impact is technically already accounted for.

[Valuegrowth]

https://mcgillbusinessreview.com/art...rbon-conundrum

https://www.bain.com/insights/air-tr...t-interactive/

[mikelee]

No problem ... I guess you hit the right tune ;

It might be a good investment - or it might not be - I agree with that.

The problem I see is that most of the success criteria are not under AIR's control ...
- how will international tourism develop, and how will NZ be effected?
- how hard will NZ work on detracting international visitors (visitor taxes and tourist bashing)?
- how will fuel prices develop?
- how will people in Europe, US and Asia modify their urge to holiday so far away (flight shaming)?

Obviously - some parameters do have AIR under control:
- they are currently selling a substandard product (compared to best in class competition) for premium prices.
- while they offer code shared flights with better carriers (e.g. Singapore Airlines),
they charge a higher price for them (happened to me - guess, which carrier I took).
- they retired too many planes and seem to have even problems to maintain the little they have left -
flight cancellations and similar are the result.
- many clients still feel agrieved about the substandard treatment they gave them during the Covid time
(fight for refunds)

So, yes - you are right - it might be a good investment, but I think the old saying still goes: don't invest in anything which floats or flies ... particularly if its so much worse than the competition ;

I probably will resist.

Substandard product indeed, I can't believe how the crew regularly got my snack order wrong too. I flew in business class, with only about 20 people to look after, and the order was placed online so they have it in front of their screen in writing! Don't get me started on the lack of selections.

[nztx]

Their spending is already accounted for in their financials. They have depreciation expenses in the region of $600-$700million a year which if you spread the announced $3.5 billion spending over 5 years it also magically equals $700 million which is their depreciation expense. So the impact is technically already accounted for.

That $600-700m is provision for write off of existing assets periodically against income

Dont expect it to remain at the same levels when new assets to the tune of a further $3.5 B come on board or further capital spending occurs

[silverblizzard888]

That $600-700m is provision for write off of existing assets periodically against income

Dont expect it to remain at the same levels when new assets to the tune of a further $3.5 B come on board or further capital spending occurs

They have written off existing assets and used the deduction on existing income. The deducted income is then available to be used to purchase more asset, which is why I say their $3.5 billion spending is technically accounted for in their financials as they won't be needing to find too much extra capital for the spending.

Based off profits and their depreciation deduction of $600-700 million they can afford to spend $3.5 billion over 5 years with no problem. Thats true their depreciation level will increase a lot more with their extra spending and allow extra deductions, which they can put towards more assets or debt repayment.

[nztx]

They have written off existing assets and used the deduction on existing income. The deducted income is then available to be used to purchase more asset, which is why I say their $3.5 billion spending is technically accounted for in their financials as they won't be needing to find too much extra capital for the spending.

Based off profits and their depreciation deduction of $600-700 million they can afford to spend $3.5 billion over 5 years with no problem. Thats true their depreciation level will increase a lot more with their extra spending and allow extra deductions, which they can put towards more assets or debt repayment.

Where's the $3.5 billion now ?

Red Ink & Accumulated Losses ?

Certainly not Cash to go forward & hand a bundle over for new Capital Assets
otherwise there would have been no need for bail outs

So do they do a Lease to use for these instead - more higher overhead cost going out the door ..

And quite a few plane loads of extra tickets issued needed to be issued to achieve break even

Past depreciation & write off is no indication of ability to go from 0 to 3.5 Billion without
some pretty good sort of trading to carry the lot, provide for notional tax, then on anything
left over maybe stakeholders expect a small fraction too .. the price of painting a rosier picture

If it were that easy & straightforward, then maybe we should organise a syndicate from here
to pick up a few parked up jets from a desert park that no-one wants and start up in competition
but with a lower Capital Assets basis ? Might even beat AIR to making a profit too

[Snow Leopard]

Airlines are capital intensive businesses and AIR have probably averaged $600M+ per annum on new assets in normal time.
The $3B5 figure is not particularly surprising, most of the purchases were flagged years ago.
With airframes being depreciated over 18 years, engines upto 15 years and old assets disappearing from the register the corresponding rise in D&A will be 'minor'.

[silverblizzard888]

Where's the $3.5 billion now ?

Red Ink & Accumulated Losses ?

Certainly not Cash to go forward & hand a bundle over for new Capital Assets
otherwise there would have been no need for bail outs

So do they do a Lease to use for these instead - more higher overhead cost going out the door ..

And quite a few plane loads of extra tickets issued needed to be issued to achieve break even

Past depreciation & write off is no indication of ability to go from 0 to 3.5 Billion without
some pretty good sort of trading to carry the lot, provide for notional tax, then on anything
left over maybe stakeholders expect a small fraction too .. the price of painting a rosier picture

If it were that easy & straightforward, then maybe we should organise a syndicate from here
to pick up a few parked up jets from a desert park that no-one wants and start up in competition
but with a lower Capital Assets basis ? Might even beat AIR to making a profit too

$3.5 billion is future spending which comes from future cashflows. For example last interim report came in with $299 million before tax, yet operating cashflow came in at $972 million, $317 million went to assets and will continue like that for future spending, leaving $655 million free cashflow. Unfortunately theres a lot of debt and lease liabilities in the company so $288 million has gone to financing activities, leaving $367 million boost for their cash balance, which is still decent for 6 months.

Well good old Richard Branson started his airline in a similar way, with some good reputation and financing. We could sure start something if we had some odd millions lying around to lease aircraft and working capital. How about a sharetraders airline with exclusive miles for high volume posters, each post earns you airpoints.

[silverblizzard888]

A recent observation on jet fuel price is that jet fuel is about $90 or less, which is a bonus on their recent forecast:

"On the basis of the updates above, and assuming an average jet fuel price for the remainder of the 2023 financial year of US$95 per barrel, the airline now expects earnings before other significant items and taxation for the 2023 financial year to be in the range of $510 million to $560 million. This compares with the prior guidance range of $450 million to $530 million."