The Government is lending $900m to Air New Zealand to prevent it from having to close down, as the Reserve Bank intervenes in financial markets to reopen a GFC-era lending facility for banks

The Government stepped in this morning to stop Air New Zealand from having to close down, while the Reserve Bank reopened a Global Financial Crisis-era lending facility so it could lend to New Zealand’s biggest and smallest banks and keep financial systems liquid.

Finance Minister Grant Robertson made the announcement with short notice from the Beehive Theatrette lecturn just moments after the Reserve Bank announcement.

Robertson said the Government and Air New Zealand had agreed on a two-year convertible loan facility for up to $900 million. This means the Government could convert the loan into new Air New Zealand shares at the Government’s request, which would increase the Government’s current 52 percent stake and dilute the proportion of shares owned by funds and individual investors.

“Without this intervention, New Zealand was at risk of not having a national airline,” Robertson said.

“Air New Zealand has a unique and critical role in our economy and society. Also, the Government owns 52 percent of the company, which means we have a responsibility towards it. We have acted swiftly to put this loan agreement in place and support our national carrier,” he said, adding however that there would still have to be job losses.

“The Government is actively working with Air New Zealand on what can be done to support these workers. This includes work underway through a separate process to mobilise some of Air New Zealand’s workforce to other areas of our fight against Covid-19, including supporting the health response,” he said.

Mercy flights planned

Air New Zealand would also carry out repatriation flights, maintain cargo transport lines and help with the heath response, Robertson said.

“Those services will be provided for under separate commercial arrangements to be negotiated in the future on an arms’ length basis between the airline and the Government.”

Reserve Bank action to calm markets

Meanwhile, the Reserve Bank of New Zealand’s Assistant Governor Christian Hawkesby said the Reserve Bank had been actively involved in financial markets this morning “to ensure smooth market functioning despite the global uncertainty from Covid-19.”

“The measures we are implementing today provide additional support to domestic financial markets. We will ensure our operations make financial markets operate smoothly,” Hawkesby said.

“We are working in tandem with the banks, the wider financial market community, and the Government,” he said.

The measures included reopening the RBNZ’s Term Auction Facility whereby it lends cash to banks in return for collateralised loans from the banks.

“Banks currently have robust liquidity and funding positions and can manage short-term disruptions to offshore funding markets. The opening of the TAF will provide confidence that the Reserve Bank stands ready to support the market if needed,” Hawkesby said.

US Federal Reserve helps

The Reserve Bank said it was also providing liquidity in the foreign exchange swap market and would increase in the weeks ahead to support funding markets.

It had also re-established a temporary USD swap line with the US Federal Reserve of up to US$30 billion.

Hawkesby said the Reserve Bank has been “providing liquidity to the New Zealand government bond market to support market functioning,” although he did not say this was a programme of Quantitative Easing.

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