Air New Zealand: Further delivery delays and aircraft groundings exacerbate planning challenges

The airline's Boeing 787 delivery timetable has been hit by more delays, which will push back its transition to an all-787 widebody fleet. It is also prompting Air New Zealand to consider keeping its 777-300ERs longer than planned.

In the shorter term, the carrier is still coping with the grounding of several aircraft due to engine availability issues. And a cabin retrofit programme for its existing 787 fleet has been affected by minor delays due to supply chain problems.

Summary

• Air New Zealand’s next 787 is due late next year, with timetable for subsequent deliveries delayed.
• The airline is now considering retaining its 777-300ER fleet until around 2030.
• The start of Air New Zealand’s 787 cabin retrofit has been shifted from Aug-2024 to Oct-2024.
• Four 787s and five A321neos are out of service due to lack of engine availability.
• Network reductions caused by the aircraft groundings have reduced profitability by about NZD100 million.

The airline's 787 delivery timeline has spread further to the right

Air New Zealand revealed the latest delays to its next batch of 787 deliveries during its earnings presentation for fiscal 2024, which ended 30-Jun-2024.

This is not an altogether surprising development, as Boeing has many issues to contend with at the moment which is affecting delivery timelines for many of its customers.

The airline has eight 787s remaining on order, with the first of these expected to arrive towards the end of calendar year 2025.

The initial delivery target is actually similar to its previous prediction. However, some of the subsequent deliveries are now expected to shift to later years.

In its previous update in Feb-2024, Air New Zealand forecast it would receive four 787s in FY2026, which begins 1-Jul-2025, two in FY2027, and two in FY2028. This already represented a delay for the initial arrival from prior estimates.

Air New Zealand's projected delivery timeline, as updated in Feb-2024

Source: Air New Zealand FY24 full-year results presentation.

In its new forecast, the carrier expects to receive two 787s in FY2026, three in FY2027, one in FY2028, and two in FY2029.

Air New Zealand's projected delivery timeline, as updated in Aug-2024

Source: Air New Zealand interim FY24 results presentation.

Keeping 777s longer would help ease potential capacity pressure in the medium term, particularly if further 787 delays occur

There is still some uncertainty around the 787 delivery timetable, said CFO Richard Thomson during an analyst briefing on 29-Aug-2024. "We are reviewing the widebody fleet plan through the end of this decade with this in mind," he said.

One thing the carrier is considering is delaying the phased exit of its 777-300ERs by multiple years. The 777s still have "considerable economic life left in them," Mr Thomson said. This means they could potentially remain in the fleet until around 2030.

Extending the life of the 777s, combined with the revised 787 deliveries, would be "a good capital-efficient option for future long-haul growth," said Mr Thomson.

He noted that Air New Zealand's widebody fleet has an average age of less than 10 years. Because this is still relatively low, it has scope to raise the average age to 12 years or more.

In the shorter-term, Air New Zealand is about to start a cabin retrofit programme for its existing fleet of 14 787s. It was previously expecting its first aircraft to begin its retrofit in Aug-2024, but it is now scheduled to start in Oct-2024. This was due to a parts supply issue, Mr Thomson said.

The first retrofitted aircraft is due to reenter service in early 2025. SASCO in Singapore is performing the work.

Engine-related groundings are the main near-term issue confronting the airline

Air New Zealand is also dealing with operational challenges caused by several aircraft being grounded due to engine availability issues.

The carrier had four 787s and five A321neos out of action for this reason as of 29-Aug-2024, although one of the 787s was expected to be back in service in 2-3 weeks. The carrier is moving some of these aircraft to Alice Springs, Australia, for storage.

The engine shortages are due to accelerated maintenance requirements, and maintenance logjams caused by supply chain problems. For the Neos, the issue is with the Pratt & Whitney geared turbofan engine, and for the 787s it is the Rolls-Royce Trent 1000s.

Air New Zealand suspended its route to Chicago as of 31-Mar-2024 as a result of the reduced 787 availability. It was initially due to be reinstated on 25-Oct-2024, but in Apr-2024 the carrier extended the suspension.

While there is no specific target date for the route to resume, Air New Zealand indicated it would likely occur when the next 787s arrive.

The carrier also suspended its Hobart and Seoul routes in Apr-2024 due to the 787 engine issues. It recently announced it will restart these routes in Oct-2024, but only as seasonal services through Mar-2025.

Air New Zealand made adjustments to its short-haul network in Nov-2023 when the scope of the Pratt & Whitney engine issues became clear.

The engine headaches are one of the major factors behind the carrier's decline in profitability for FY2024. The airline reported a net profit of NZD146 million (USD91 million), compared with a profit of NZD412 million a year earlier.

Airline CEO Greg Foran said pre-tax profits would have been about NZD100 million higher if the airline had been able to operate all its aircraft.

Other factors cited by Air New Zealand include a major increase in competitive capacity by US carriers on routes between New Zealand and North America, higher inflation, and tougher economic conditions that hurt domestic demand.

Lack of certainty over engine maintenance backlogs and 787 delivery delays have compounded the problem

While similar aircraft operational issues and delays have been experienced by many carriers worldwide, this is cold comfort to Air New Zealand.

It has been affected on multiple fronts, with engine availability challenges for its narrowbody and widebody fleets, and repeated timetable shifts for its next 787 deliveries.

Aircraft groundings due to engine shortages is now commonplace in the industry, but it hits particularly hard for airlines like Air New Zealand that have relatively small fleets.

The carrier has done what it can to make up for capacity shortfalls, by leasing three more Boeing 777-300ERs and cutting some services.

Making a longer-term decision to extend the life of its 777s would appear to be a wise option. At least this will give it some degree of planning certainty - while the status of its newer models remains a shifting target.