Air New Zealand boss Greg Foran warned today that the airline industry would be changed by the impact of coronavirus.

"Not all airlines are going to survive this," he told media today.

His comments follow an announcement by the Government today that it will open a $900 million loan facility to the airline.

Foran said today that the $900m figure was the amount the airline requested and that he was confident that it would be enough to see the airline through a few tough months.

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He would not, however, speculate on how long this would last the airline or how long coronavirus would impact the industry.

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Foran said that Air New Zealand has already seen an 85 per cent reduction in revenue from international flights and as much as 70 per cent on the domestic front. He said overall flight numbers had decreased from 3600 a week to under 1500.

"You can't take costs out of your business quickly enough to counter that," he said.

Air New Zealand had suggested earlier that it was looking to cut as much as a third of its staff and Foran confirmed today there would still be job cuts.

He would not go into details on these cuts but said it was necessary to make changes across the business to ensure Air New Zealand was in a good position to recover once the pandemic subsides.

Is the bailout enough?

Air New Zealand shares sank by more than a third as investors judged the government's $900m bailout to be too small.

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Finance Minister Grant Robertson today said the government loan would keep the airline afloat, but that's at the cost of any future dividend payments while any debt's outstanding. The debt can also be converted to equity.

The shares resumed trading this morning after being halted this week while the airline and government finalised the deal. They tumbled 38.8 per cent to 95 cents at 12.40pm in Wellington, wiping out more than $660m of shareholder value and valuing the airline at just $1.07 billion. The airline started the year at $2.93 a share for a market value of $3.29b.

Rickey Ward, New Zealand equity manager at JBWere, said the size of the loan was too small given there was speculation that $2b-to-$3b was needed.

"If this is the playbook for how government assistance will occur, then as existing shareholders your interests would appear to be secondary, especially if the initial loan is not nearly enough," Ward said.

"Converting to equity is effectively nationalising the investment and diluting any other shareholder ownership. You can see why the market has said that it has become uninvestable."

The loan will come in two tranches - $600m at an effective interest rate expected to be between 7 and 8 per cent, followed by $300m at a rate of 9 per cent

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As part of the deal, Air New Zealand cancelled its upcoming dividend payment of 11 cents per share, or $123.5m. The company also agreed not to pay dividends while the loan is outstanding.

The government can seek repayment through a capital raising after six months, or converting the debt to equity.

Robertson told media that the support was chosen for speed, with a risk of a shutdown a real possibility.

"They've been in discussions with their banks" and it was clear such support was unlikely to be available from any other source than the government, Robertson said.

He said the airline was confident the loan would get it through the current crisis.

"They obviously have existing reserves and they're not operating in a no cash flow environment," he said.

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Finance Minister Grant Robertson has announced a loan of up to $900 million to bail out Air New Zealand. Video / Derek Cheng

Robertson said he didn't want to discuss the conditions of the financing, but did say the airline has to supply the government with business plans and deal with "various regulatory matters."

Grant Williamson, a director at Hamilton Hindin Greene, said today's bailout was just the start, and that the market's reaction showed investors didn't think it was enough.

"The government will do as much as they possibly can in order to save the company," he said.

"Air New Zealand is definitely required in New Zealand."

Robertson said the government's 52 per cent stake could rise if the loan was converted to equity, but that the airline believed it was in a strong enough position to keep going.

"We need to see how things play out over the next few months. We're satisfied Air New Zealand as a company is well run and well-governed," Robertson said.

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The government is currently of the view that the airline will repay the two-year loan, but Robertson noted the situation was "very fluid."

Williamson said travel patterns are going to change as a result of the outbreak, especially as companies get used to using teleconferencing, and the future for airlines around the world had become increasingly murky.

Greg Smith, head of research at Fat Prophets, said the $900m loan may cover the airline if the outbreak is over by May.

"Even with the bailout there is massive uncertainty as to when capacity will be restored, and what sort of debt load they are going to end up with," he said.

The government last bailed out the national carrier in 2001 when Air New Zealand's purchase of Ansett turned out to be a dud. The government of the time injected $885m of new equity into the airline to prop it up rather than let it collapse.

Separately, the government is working with the airline to ensure key services are maintained, including repatriation flights and critical cargo lines. Redeployed airline staff could also assist the government's health response.

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The government yesterday announced $270m of support for aviation services, largely covering government fees and keeping air traffic services operating. It signalled a $600m package to support the aviation sector.

Justin Tighe-Umbers, chief executive of the Board of Airline Representatives New Zealand, said his members were working to keep cargo channels open.

"The government must shift money to the right places now to ensure the aviation infrastructure is protected so that it can reboot as quickly as possible once the covid-19 threat subsides," he said.

"That means ensuring we support people like airline staff, ground handlers, caterers, fuellers and air traffic controllers."

Robertson said the government wants to keep major existing routes open, such as Australia, Singapore, Hong Kong and North America. Today's loan also safeguard the domestic network, he said.

- With BusinessDesk

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