Air New Zealand credit rating upgraded

SYDNEY (XFNews) - Air New Zealand Ltd's credit rating has been upgraded to "BB" from "B+", due to a stable outlook and an increased likelihood the New Zealand government will retain a majority shareholding in the airline, Standard & Poor's said.

The ratings agency said the rating upgrade took into account the company's record of delivering a satisfactory financial performance.

"The presence of the New Zealand government as the controlling shareholder, and the government's track record of past assistance, could cushion a modest deterioration in the airline's underlying credit quality," credit analyst Anthony Flintoff said.

The New Zealand government presently owns 80.4% in the airline.

Flintoff said Air New Zealand's strong position in the domestic New Zealand market and management's ongoing cost-cutting program also support the stable outlook.

"Air New Zealand's domestic business has benefited from a benign New Zealand economy and the success of transforming the domestic business into a lower-cost model," Flintoff said.

"This improvement in the airline's operating efficiency and its competitiveness puts it in a better position to defend its market share and effectively compete with rivals," he said.

Flintoff added that like other global airlines, Air New Zealand is experiencing challenging market conditions, including higher jet fuel costs, volatile exchange rates and growing competition on international routes.

Air New Zealand said in late November that it expects fuel costs to have a reduced negative impact of NZD60 million on current year profitability, down from an earlier estimate of NZD100 million made at the company's annual meeting in October.

Flintoff said the ratings upgrade took into account the airline's liabilities are poised to rise, with the airline expected to spend significant capital expenditure to upgrade its fleet and service offering in the next few years.

The airline announced in late October a firm order for another two Boeing 787-8 aircraft at an airframe list price of 117 million usd each, in addition to the two it already has on order, to enable the New Zealand flag carrier to consider new routes beyond its current network.

As part of its international long-haul fleet strategy, Air New Zealand plans to have all its eight B777-200ER aircraft in service by early 2007 and introduce the B787 aircraft during 2010-11.

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