Sun Country has announced the completion of an offering of Enhanced Equipment Trust Certificates (EETC) which will be used to obtain financing secured by 13 Boeing 737-800 aircraft. Five of the 13 aircraft are currently owned and are being refinanced, two of the aircraft are currently owned outright, four of the aircraft are expected to be acquired on or about the initial funding date, and the remaining two aircraft are under lease and are to be purchased from the lessors under purchase options in the respective lease contracts.
Sun Country received gross proceeds of $172,507,000 in respect of 12 of the aircraft on March 31, 2022, and expects to receive an additional $15,770,000 of gross proceeds in respect of the thirteenth aircraft on or before September 15, 2022.
The offering is comprised of $142,830,000 Class A certificates, priced at 4.84% per annum with a final expected distribution date of March 15, 2031, and $45,447,000 Class B certificates, priced at 5.75% per annum with a final expected distribution date of March 15, 2029. The two tranches of Certificates have a weighted average interest rate of 5.06%.
Also this week, Air New Zealand (AirNZ) has launched a comprehensive NZ$2.2 billion recapitalisation package, which includes a $1.2 billion pro rata renounceable rights offer.
Air New Zealand says the recapitalisation package will help position the airline for recovery and has been sized with a view to maintaining the company’s investment grade credit rating (Moody’s Baa2 – stable outlook) and to “support the execution of Air New Zealand’s strategic priorities”.
The $1.2 billion pro rata renounceable Rights Offer allows eligible shareholders an opportunity to buy additional shares in Air New Zealand at a discount relative to the prevailing share price. Approximately 2,246 million new fully paid ordinary shares in Air New Zealand will be issued, representing approximately 200% of Air New Zealand’s existing ordinary shares on issue. The new share offer price is $0.53 representing a 61.5% discount to the last traded price on NZX of $1.375 on 30 March 2022, and a 34.7% discount to Theoretical Ex-Rights Price (TERP) of $0.81. The Australian dollar application price for eligible shareholders has been set at A$0.49, using the prevailing AUD / NZD exchange rate. Proceeds from the Rights Offer will be used to repay the $850 million outstanding on the airline’s existing Crown Loan, with the remaining $950 million to be used to strengthen its balance sheet, improve liquidity and help position Air New Zealand for recovery.
Citi and UBS are underwriters, and joint lead managers with Forsyth Barr. Bell Gully and Herbert Smith Freehills are the legal advisers.
Air New Zealand Chair Dame Therese Walsh, said: “While there will still be bumpy skies ahead over the next few years, the moment is right for Air New Zealand to raise equity, recapitalise its balance sheet and repay the loan it received from the Crown during the Covid crisis. This is an important step in refuelling for our recovery. The Rights Offer we are launching today is structured to provide all eligible Air New Zealand shareholders with a fair opportunity to participate.”
The Crown has committed to supporting the Rights Offer and will participate to ensure it holds a 51% shareholding in Air New Zealand on completion. Some NZ$600m of redeemable shares are to be issued to the Crown under the existing subscription agreement and will commit to a new four-year Crown Loan of NZ$400 million. AirNZ stated that this new loan is not expected to be drawn and is only to provide additional liquidity if required through the recovery period.
AirNZ stated that it is not subject to any financial covenants on its debt.
Air New Zealand also intends to raise approximately $600 million through a debt capital markets issuance, currently intended to be completed by 30 June 2022. Upon successful completion, $400 million of the Redeemable Shares are intended to be repaid, leaving approximately $200 million of the Redeemable Shares remaining on issue.
On 24 February 2022, Air New Zealand’s FY2022 interim results noted that it expected to incur a loss before taxation exceeding $800 million for the 2022 financial year. Air New Zealand now expects its FY2022 full year result to be a loss before other significant items and taxation of less than $800 million. Beyond FY2022, the airline notes that further losses are expected to be incurred in the near-term “subject to the level and pace of the return of demand”.
Air New Zealand says in the investor presentation that it has seen encouraging early signs in recent booking activity since the New Zealand Government’s 28 February 2022 and 16 March 2022 announcements to relax certain travel restrictions, including the removal of self-isolation restrictions on a phased basis throughout 2022.
AirNZ said that international booking activity increased following the Government announcements, which was predominantly trans-Tasman and North American flights, with Asia and Pacific Islands flight booking activity subdued. “Air New Zealand believes this increased activity reflects an element of pent-up demand and an increase in booking activity following those announcements.” The airline added that bookings for its new New York City service, announced on 23 March 2022, have been “encouraging”. However, domestic bookings remain impacted by Omicron, said AirNZ, with booking activity predominantly related to leisure travel: “Air New Zealand is expecting a strong improvement on the level of domestic bookings as concerns around Omicron abate.”
AirNZ reported that its move to simplify its fleet – swapping out its 777-200ER fleet and eventual retirement of 777-300ER aircraft for a larger proportion of 787s and A320 / 321neos – to drive improved operating cost and capital expenditure outcomes was “on track”. The airline will face aircraft capex of approximately $446 million between FY2023 and 2028, as well as expected costs of approximately $400 to $450 million related to the Interior retrofit of 14 existing 787 aircraft anticipated to commence no earlier than mid-FY24 and staggered over several years. The airline is also investing $150-200 million in digitisation and infrastructure, including a new engineering hanger and new head office, as well as $150 million annual expenditure for engine maintenance.