The government of New Zealand has announced it intends to sell down its ownership of Air New Zealand (ASX: AIZ) from 73% to 53%. The company has been placed into a trading halt over Monday and Tuesday while a book-build is organised. With the shares approaching five-year highs, the Kiwis may have chosen a good time to unload a sizeable portion of their holding.
The government took a majority holding in the airline in 2001, after the terrorist attacks of September 11 and industry crisis that followed. The mixed-ownership model has proven successful, with the government receiving over NZ$500 million in dividends since 2001, while providing support for the airline to execute its turnaround programme.
Air New Zealand has easily outperformed rivals Qantas (ASX: QAN) and Virgin Australia (ASX: VAH) in 2013. The company owns 23% of Virgin Australia with speculation that it may move to assume full control. The two airlines are allied in flying the critical trans-Tasman route.
The business posted a net profit after tax of NZ$182 million for financial-year 2013, up 156% on the prior year. Operating cash flow of NZ$750 million was also a record for the business. An attractive yield of approximately 4.55% is also available at current prices.
Foolish takeaway
The airline business is notoriously competitive and this remains a key risk. In its home New Zealand market, ruthless price competition from low-cost carrier Jet Star could yet cause turbulence ahead. The investment in Virgin Australia is also a strategic gamble — the results of which are yet to fully play out. Air New Zealand will have to fight hard to continue its recent success.
