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Is Air New Zealand Limited’s (NZE:AIR) Balance Sheet A Threat To Its Future?

Mid-caps stocks, like Air New Zealand Limited (NZSE:AIR) with a market capitalization of NZ$3.36B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at AIR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AIR here. View our latest analysis for Air New Zealand

Does AIR generate enough cash through operations?

AIR’s debt level has been constant at around NZ$2,514.0M over the previous year made up of current and long term debt. At this current level of debt, AIR currently has NZ$1,369.0M remaining in cash and short-term investments for investing into the business. On top of this, AIR has produced cash from operations of NZ$904.0M in the last twelve months, leading to an operating cash to total debt ratio of 35.96%, indicating that AIR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AIR’s case, it is able to generate 0.36x cash from its debt capital.

Can AIR meet its short-term obligations with the cash in hand?

At the current liabilities level of NZ$2,405.0M liabilities, the company is not able to meet these obligations given the level of current assets of NZ$1,887.0M, with a current ratio of 0.78x below the prudent level of 3x.

NZSE:AIR Historical Debt Jan 25th 18
NZSE:AIR Historical Debt Jan 25th 18

Can AIR service its debt comfortably?

With total debt exceeding equities, AIR is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In AIR’s case, the ratio of 20.3x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving AIR ample headroom to grow its debt facilities.

Next Steps:

AIR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. This is only a rough assessment of financial health, and I’m sure AIR has company-specific issues impacting its capital structure decisions. I suggest you continue to research Air New Zealand to get a more holistic view of the stock by looking at:


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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