Air New Zealand has received a loan from the government to the tune of NZ$900 million. This loan will help the airline weather the coronavirus pandemic as the carrier reduces flights amid global travel restrictions and slumping demand.

Air New Zealand receives NZ$900 million loan

Simple Flying has learned that the airline has worked out an arrangement with the New Zealand government for a debt funding agreement. As part of the agreement, the government will provide Air New Zealand with NZ$900 million. This amount is to help the airline manage the negative impact of the COVID-19 pandemic on the airline's financials.

With this loan, Air New Zealand can draw down funds if cash reserves drop below a minimum threshold. There are two tranches on this funding. The first tranche of NZ$600 million has an effective interest rate to be between 7 and 8% per annum. The second tranche of NZ$300 million will have an effective interest rate of 9% per annum. The loan will be available for 24 months. The interest rates for each tranche will increase by 1% if there is still money available after 12 months.

As part of this deal, Air New Zealand will have to cancel its 2020 interim dividend. In addition, the airline cannot pay out any other dividends or distributions to shareholders while drawing money from the loan. The government can also seek repayment after six months through a capital raise by the airline or convert the loan to equity.

The situation at Air New Zealand

Recently, Air New Zealand has had to make some significant capacity reductions amid the COVID-19 pandemic. This includes cutting flights to Buenos Aires, closing its London cabin crew base and suspending flights to London, Chicago, Houston, Bali, and Chicago among many others. The airline will, however, maintain flights between Auckland and Los Angeles.

The airline's domestic network will see a 30% capacity reduction in April and May after the airline previously offered reduced fares on domestic routes. However, at this time, there are no recorded route suspensions.

In addition, Air New Zealand is also working with the government on running rescue flights and cargo transport lines. It is also deploying some employees to assist with the country's health response as needed. These agreements are separate from the airline's loan.

Overall

A number of carriers around the world are seeking government assistance as the COVID-19 pandemic takes its toll on the aviation industry. As New Zealand's largest carrier, Air New Zealand plays a critical role in connecting New Zealand with the rest of the world. This NZ$900 million loan will be able to help the airline weather the storm as the pandemic slashes demand for air travel and governments shut borders.

Are you glad to see Air New Zealand get a loan? Let us know in the comments!