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Auckland Airport strengthens its balance sheet

Auckland International Airport Limited is conducting an equity raising of up to NZ $1200 million via the issuance of ordinary shares in Auckland Airport, comprising an NZ$1000 million fully underwritten placement and an NZ$200 million share purchase plan.

Chief executive Adrian Littlewood says Auckland Airport was acting to strengthen its balance sheet and ensure it remains well capitalised during this period of strict border controls and significantly reduced passenger numbers, and to ensure it is strongly positioned for a post COVID-19 recovery.

“The COVID-19 pandemic has had a significant impact on Auckland Airport’s operations and will continue to do so under the current border restrictions and through the subsequent recovery period. “Impacts to Auckland Airport’s operating environment have been characterised by a substantial decline in international and domestic passenger numbers and a material decline in aeronautical and non-aeronautical revenue.

“Auckland Airport has been serving New Zealand for more than 50 years and we will be here for many more years to come. We provide critical infrastructure to support New Zealand’s economic growth and we look forward to making a strong contribution to our nation’s long-term recovery.

“But for now, our focus has to be on the near term. We are wasting no time in taking necessary steps to ensure our organisation remains resilient throughout this crisis and emerges in a strong position once the trading environment improves,” says Adrian.

Proceeds from the placement will provide Auckland Airport with pro forma adjusted liquidity of approximately NZ$1258 million, including cash on hand plus committed undrawn bank facilities, as at March 31, 2020, of NZ$340 million and NZ$485 million, respectively, and adjusted for capital markets debt due to mature before December 31, 2021. This provides Auckland Airport with sufficient liquidity to respond to a range of recovery scenarios.

 

Auckland Airport has rapidly responded to the current operating environment with a range of initiatives to ensure the safety of its people, travellers, customers, and stakeholders, while addressing the impact of the COVID-19 pandemic on its operations and finances.

The equity raising is in addition to other measures undertaken by Auckland Airport, which include obtaining covenant relief from its banking group through to the end of December 2021 (inclusive), securing extensions to bank facilities due to mature in that period, as well as the previously announced measures including the cancellation of the FY20 interim dividend, suspension or cancellation of certain capital expenditure, and reduction in operating costs. Auckland Airport has also suspended all future dividends while the debt covenant waivers are in place.

“We are acting prudently and allowing for a range of recovery scenarios. We will continue to monitor the situation and adapt our operations as the path forward becomes clearer,” says Adrian.

 

In response to the COVID-19 pandemic, Auckland Airport has had a sharp focus on cashflow management and cost reduction, while also ensuring business continuity for our employees and the community.

Management has implemented a number of initiatives to reduce Auckland Airport’s cost base, including:

  • suspended discretionary expenditure;
  • reviewed work underway with external consultants;
  • reduced number of external contractors supporting the business and capital programme;
  • reduced remuneration of board members and executives by 20 per cent;
  • reduced the majority of employee pay to 80 per cent and a four day working week;
  • suspension of bonuses and short-term incentives for FY20; and
  • reduction of operations in line with the new operating environment.

Under the current conditions and while they continue, Auckland Airport is targeting a ~35 per cent reduction on FY19 operating costs, post implementation of the above initiatives.

 

Auckland Airport is proud to be New Zealand’s main gateway to the world, with more than 21 million passengers passing through the precinct in the 2019 financial year.

Adrian says the outbreak of COVID-19 had hit just as the organisation was accelerating one of the country’s largest private infrastructure investment programmes designed to accommodate projected growth in passenger numbers.

“This has been our team’s shared ambition – to deliver the critical aeronautical infrastructure New Zealand needs to support growth in travel, trade and tourism. Over the past 12 months we have made excellent progress, beginning construction on three key anchor infrastructure developments, while other projects such as the domestic jet hub were just about to kick off.

“While our long-term plans remain the same and we still are optimistic about the long-term outlook for passenger growth, our near-term projections no longer hold true. As incredibly difficult as it is for our team to see progress stall, we have had no choice but to move just as swiftly to suspend or cancel the majority of our infrastructure development programme,” says Adrian.

Capital expenditure projects with an estimated completed project value in excess of NZ$2 billion have been suspended or cancelled to reduce Auckland Airport’s short term funding obligations while allowing the flexibility to recommence key projects in line with changing operational priorities and improving operating conditions.

Auckland Airport expects to incur ~$275 million of capital expenditure between April 2020 and December 31, 2021, with the capital program focusing on essential safety, asset replacement, maintenance and resiliency (including the planned runway pavement replacement), in addition to finishing projects sufficiently close to completion.

 

In conjunction with its operating response to the COVID-19 pandemic, Auckland Airport is taking decisive action in relation to the capital structure to improve its financial flexibility. Auckland Airport has secured significant support from its lenders, including an extension of all bank facilities maturing in the period to 31 December 2021 as well as obtaining covenant waivers from its banking group for potential breaches resulting from the adverse operating environment associated with the impact of COVID-19 in that same period.

In addition to the support received to date from its lenders, Auckland Airport will seek covenant waivers through to December 31, 2021, from existing USPP noteholders in the near term, consistent with the approach taken with its banking group. The current gross outstanding balance of Auckland Airport’s USPP note programme as at 31 March 2020 is NZ$702 million, excluding expected derivative gains, if the USPP notes were to be repaid, of NZ$285 million.

Following the placement, Auckland Airport will hold pro forma adjusted liquidity, including cash on hand and committed undrawn bank facilities, of NZ$1258 million as at March 31, 2020. This liquidity provides the flexibility for Auckland Airport to respond to a range of recovery scenarios.

Over the period to December 31, 2021, the equity raising, debt renegotiations and operating response announced provides Auckland Airport the ability to:

  • cover operating costs and capital expenditure;
  • cover one-off costs from the suspension or cancellation of various capex projects; and
  • provide flexibility to manage current debt facilities, including capital markets debt due to mature before 31 December 2021, totalling NZ$567 million (including NZ$175 million of USPP notes).

 

Despite the current adverse operating conditions, Auckland Airport’s fundamental characteristics remain solid as New Zealand’s gateway for travel and trade, linking New Zealand to the world and Auckland to New Zealand. Auckland Airport represents critical infrastructure that is supported by a stable regulatory environment, with a diversified revenue and asset base across aeronautical, retail, hotels, parking, and property.

“During this period, we are continuing to maintain the highest standards in airfield safety and security. New Zealand is an island nation, and in modern times we have never been so physically isolated from the world. Our airfield is vital to providing ongoing connectivity to global markets for the safe passage of essential goods, and to help New Zealand exporters get their products to market,” says Adrian.

The actions announced maintain Auckland Airport’s flexibility and strong position post a COVID-19 recovery. A focus on cost reduction initiatives, increased financial flexibility and a strong pipeline of aeronautical and non-aeronautical opportunities position Auckland Airport for a return to growth as part of a COVID-19 recovery in New Zealand and globally.

“Our team is doing an amazing job in responding to the outbreak of COVID-19, supporting border agencies and the Ministry of Health, and maintaining our operations so people can get home. I’m extremely proud of the commitment they’ve shown in really difficult circumstances,” says Adrian.

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