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Air New Zealand anticipates reduced profits amid engine compensation adjustments

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Air New Zealand anticipates reduced profits amid engine compensation adjustments
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Air New Zealand | Official Website

Air New Zealand has revealed its projected earnings, forecasting a potential reduction in profits due to ongoing engine issues affecting its fleet. The airline announced that its earnings before tax may reach up to $112.3 million by the end of 2025. This update comes after 11 aircraft, part of the Airbus A320neo and Boeing 787 families, were grounded because of problems with Pratt & Whitney PW1100G and Rolls-Royce Trent 1000 engines.

In filings on the New Zealand Exchange and Australian Securities Exchange dated April 16, Air New Zealand, which initially could not provide a financial outlook, confirmed plans to release its full-year results on August 28. The airline reaffirmed its uncertainty about full-year guidance earlier this year due to challenges related to aircraft engine compensations from manufacturers Pratt & Whitney and Rolls-Royce.

The grounding is attributed to the removal and inspection of PW1100G engines and maintenance of Trent 1000 engines. This has left several aircraft inactive, including one A320neo, four A321neo, and four 787-9. Air New Zealand is awaiting the delivery of new 787-10 aircraft equipped with GE Aerospace GEnx engines.

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"Since that announcement, engine maintenance timeframes provided by the manufacturers remain unpredictable. As a result, current expectations are that 11 aircraft are grounded, despite Air New Zealand securing seven additional leased engines and one further owned spare engine to stabilize the number of grounded narrowbody jets."

In negotiations for compensation with engine manufacturers, Air New Zealand has encountered complexities. The flexibility of treating non-operational engines as unserviceable is no longer available, affecting the compensation framework, which now relies on engines physically removed from aircraft.

The airline estimates engine compensation to fall within NZ$35 million to NZ$40 million, significantly lower than the NZ$94 million received earlier this year. Despite profiting from lower fuel prices, Air New Zealand is adjusting to fewer available aircraft, which complicates capacity as engines come back into play.

Additionally, the global 10% tariffs announced by former U.S. President Donald Trump bring further uncertainty. Air New Zealand has not recorded significant changes in bookings or cargo demand and calculates its fiscal earnings before tax to range from NZ$150 million to NZ$190 million, provided fuel prices remain stable.

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