Welcome to the Air New Zealand 2025 Interim Results Call. During the presentation, your lines will be placed on listen-only until the question-and-answer session. Please refrain from asking questions until that time. And with that, I will turn the call over to Air New Zealand's Head of Investor Relations, Kim Cootes.

Thank you and good morning everyone. Today's call is being recorded and will be accessible for future playback on our Investor Center website which you can find at www.airnewzealand.co.nz/investorcentre. Also on the website, you can find our interim results presentation, the interim financial report and media release, as well as other relevant disclosures. Speaking on the call today will be Chief Executive Officer, Greg Foran; and Chief Financial Officer, Richard Thomson. Leila Peters, our GM of Corporate Finance, will also join us for the Q&A session. I would like to take a moment to remind you that our comments today will include certain forward-looking statements regarding our future expectations which may differ from actual results. We ask you read through the disclaimer and, in particular, the forward-looking cautionary statement provided on Slide 2 of the presentation. With that, I'll pass the call over to Greg.

Thank you, Kim. Kia ora, and good morning, everyone and thanks for joining us on today's call. The first half of the 2025 financial year has been a period marked by some notable successes but also a heck of a lot of challenges. And like I mentioned on the annual results call last year, those things are often happening simultaneously. Let's start with some of the wins. Late last year, we were once again voted the world's best airline by Condé Nast. Now this isn't a survey run by us. They polled 30,000 customers independently. Receiving this kind of recognition is no small feat, especially when you consider the disruptions we've been managing, primarily around elevated levels of grounded aircraft from extended engine maintenance requirements on the engines that power our NEO and 787 Dreamliner fleets. I believe it's a testament to the outstanding work of our 11,600 strong Air New Zealand Faro, who've been working tirelessly to put proactive mitigations in place and limit disruptions for our customers. I'll talk more about that shortly. On the fleet front, we have our first Boeing 787 Dreamliner up at the SACO facility in Singapore undergoing the world's first end-to-end interior retrofit. We'll have that aircraft back in about a month or two. And by this time next year, we expect more than half of our existing Dreamliner fleet to be retrofitted with our new interior products, including the business Premier Luxe seats. We also anticipate receiving two additional leased engines as well as the two previously disclosed leased Airbus A321 aircraft to further strengthen our network resilience in the coming months. We'll be introducing digital bag tags, trialing onboard domestic Wi-Fi and one of our projects I'm most excited about, bringing in an all-electric demonstrator aircraft around the middle of this year. We're also on track to unveil our new uniform in the coming months. Now, I could keep listening these things all day long. But in short, this is all a result of the hard work that's been happening in the background of this year. We're not waiting around for the domestic economy to bounce back or for engine disruptions to stabilize. We're making moves now to future-proof our airline. And at the heart of this ongoing effort is our incredible team. I've often said that our people are the secret to our success. And I'll keep saying it because it's true. In tougher times, it can be tempting to look for quick short-term fixes, maybe delay in investment or pull back on commitments but that's not how we operate. We're investing in new hangars that will serve us for decades to come, expanding our Christchurch Engine Center because it's an excellent long-term business opportunity and steadily rolling out aircraft retrofits because we know it's the right thing to do for our customers and our brand. We also believe in tackling multiple challenges head on, all at once. Around here, we often say we need to be able to walk and chew gum at the same time. So while we might have a Trent engine that didn't return on schedule or end up with one more A321 on the ground than planned, we don't let that stop us from making the 100 small improvements that add up, whether it's streamlining check-in, cutting down the clicks in our mobile app or giving our engineers and frontline teams the tools and the data they need to solve problems on the spot. That's not to say the past 6 months haven't been incredibly tough. Today, we announced earnings before taxation of $155 million for the period which we consider a strong result in the light of the engine availability issues. It also lands us at the upper end of the guidance range we issued at our Investor Day in November. Yet these engine delays continue to have a significant impact. Overall capacity was down about 4%, reflecting up to 8% of our newest jets being grounded at various times. While we did receive $94 million in compensation from the engine manufacturers, it doesn't come close to offsetting the full operational and financial burden. We estimate about $40 million in adverse impacts for the half that we can directly measure, including an assumption of the other knock-on inefficiencies and productivity losses. Richard will discuss these numbers in more depth shortly. Despite this, I'm incredibly proud of our people. They've stayed focused both on serving our customers and setting Air New Zealand up for long-term success. Beyond the challenges, we're also seeing bright spots. Cargo, for instance, has continued to perform well, buoyed by strong demand for trans-shipments out of Asia and Europe. Our loyalty program remains robust and our Tasman and Asian routes have been doing really well. For our shareholders, we announced a buyback program this morning, a clear signal of our confidence in the airline's ability to weather these short-term disruptions, continue to innovate and invest while returning value to shareholders. The Board also approved an unimputed interim ordinary dividend of $0.0125 per share, supported by the result announced today and our solid balance sheet. We believe these actions underscore the fact that we're managing current pressures effectively while staying true to our long-term ambitions. We've already discussed many of these points, so I won't spend too long here. But it's important to note that our fleet situation will not improve in the near-term. In fact, it's likely to become more challenging through the end of this financial year and into the first half of FY 2026. At first glance, having 10 or 11 aircraft grounded may not sound that dramatic. But in reality, it represents roughly 20% of each affected fleet. The operational ripple effects are substantial and I cannot overplay this enough. Our teams are constantly in the market trying to source spare engines, readjusting network schedules and then adjusting them again, accelerating maintenance time lines, sometimes more than doubling our normal engine swap out rate. And that's before you even think about some of the more difficult decisions we've had to make like pausing our direct sole service to preserve a more reliable overall schedule. So what are we doing about it? Quite simply, everything we can. We continue to engage closely with our OEM partners. And I've been on the phone and meeting in person with the CEOs and senior leaders of all of those key partners on a regular basis over the past 12 to 18 months. Why? Because managing these relationships is hugely important as we fight for our share of parts, compensation and service across an aviation ecosystem that continues to be tested. We are actively searching the market for more spares where it makes commercial sense to do so. We are defending our market share on core routes. And we are exploring every possible avenue to keep delivering for our customers. Not every partner is struggling with the same issues and each of them are at different phases of solving their own production issues. This creates nuance and complexity in how we engage with each of them and that can also be frustrating at times. What I would say, though, is that it pays to remember that these challenges are temporary. They're temporary. And while they may not resolve this year or even next, they will abate and we're determined to be in an excellent position when that happens. Turning to our market performance. I'm generally encouraged by what we're seeing, especially considering the fleet constraints we've managed for more than a year now. If not for the ongoing engine-related disruptions, I would be feeling even more optimistic about our current momentum. Demand in our domestic market remains mixed but we believe we've seen the bottom. The corporate and government segments continue to be subdued which has contributed to overall softness. However, SME and leisure travel are holding up reasonably well. We are constantly monitoring and experimenting with ways to stimulate demand. For example, our recent New Year's sale included domestic markets for the first time in history and was hugely successful in generating demand across the traditionally softer periods. And as I've said many times, domestic is our Citadel and we will do everything we can to support this market for the long term. To put a finer point on it, we'll look to add capacity on some of the domestic routes to maintain the level of market share that supports our customer needs. Looking to North America, capacity across the industry has expanded by over 50% in the past year or so, well ahead of demand in some cases. While our growth has been limited by fleet availability, we're pleased to see solid underlying demand, particularly in premium cabins. This bodes well for when aircraft constraints ease and we can restore more capacity. Asia continues to stand out as a bright spot in both passenger and cargo segments. Markets like Japan, Bali, Singapore are performing strongly. Then last but certainly not least, we are really pleased with the demand for our Tasman and Pacific markets and continue to focus our efforts here. The balance of wide-body and narrow-body deployment on these routes is a valuable tool in managing demand here as well as enhancements in our seats-to-suit offering which have really seen positive feedback from customers, including our food, beverage and IFE offering. Overall, we're feeling good about most areas of demand but are clearly attuned to the macro environment and increased volatility the whole world is experiencing currently. We know things can change and change rapidly. But as we discussed at our Investor Day, we have a plan that guides us and we're sticking to it and delivering on it. We remain focused on maintaining our momentum across all markets, ensuring we're well positioned to capitalize on opportunities as fleet constraints gradually subside. Now, turning to Slide 7 and touching briefly on our progress on the strategic initiatives we outlined at our Investor Day in November. The key message is that we're on track to deliver the target we set out for the 2025 financial year. In fact, about $40 million of our first half EBITDA can be directly attributed to these initiatives which is just under half of what we're aiming for over the full financial year. As expected, the benefits are second half weighted. So we anticipate further gains as we move through the remainder of FY '25. You'll see a few standout examples on the right of the slide and I'd like to touch on 2 in particular. Live chat is one example that's proven crucial for driving operational and labor efficiencies in our contact centers. Beyond that, it's earned positive feedback from customers who appreciate real-time support and quicker resolution of issues. Some of you may recall that over a decade ago, we introduced seats to suit to more effectively segment our short-haul cabins and compete with low-cost and fifth freedom carriers. In June, we responded to customer feedback for more inclusive offerings by adding in-flight entertainment, snacks and beverages while retaining a competitive fare. To date, this repositioning has driven around a 30% increase in customers upgrading to the works product. I want to stress that these are just a few examples. Overall, we're seeing solid traction on our transformation initiatives and I'm pleased with the momentum so far. We remain confident in achieving our overall FY '25 targets and look forward to updating you on our progress over time. It also pays to note that these initiatives are helping to partly offset inflationary pressures through enhanced efficiencies. While it's not a complete offset just yet, we expect these measures to close the gap within a year or so and provide additional upside thereafter. Now, I'll turn it over to Richard to take you through more financial details.

Thank you, Greg. Starting with Slide 9, I'll touch on some of the key financial highlights for the half year. Operating revenue was $3.4 billion, down 2% on the prior period, largely driven by the 4.4% reduction in capacity that Greg has already discussed. As a result, passenger revenue decreased 5% to $2.9 billion. Cargo revenue, on the other hand, increased 6% to $257 million due to higher load factors and volumes of transshipments on our wide-body aircraft despite reduced overall capacity. We have provided a breakdown on the key drivers of our cargo performance in Slide 21 for those interested which you can find in the appendices. Earnings before taxation was $155 million and we ended the 6-month period with liquidity of $1.8 billion. Our balance sheet is strong with a net debt-to-EBITDA ratio of 0.9x which remains below our target range of 1.5 to 2.5x as we continue to hold reduced debt levels ahead of the CapEx program for our new Boeing 787 aircraft. And as Greg mentioned in his opening remarks, the Board has declared an unimputed dividend for the interim period of $0.0125 per share. Moving on to Slide 10. If you consider our half year results of $155 million against the backdrop of worsening engine availability, it's actually a very solid outcome. It's difficult to convey the full scale of the disruption we've been dealing with and it's even harder to quantify. While we can estimate certain direct and indirect costs, they only tell part of the story. For instance, as Greg mentioned, the level of increased activity across our engineering and maintenance teams who have performed countless additional engine swaps, all while continuously revising plans as circumstances change. That sort of repeated re-planning and rework drives significant inefficiencies and it's just one example of the broader impact we've faced across both our operation and corporate functions. But we have attempted to pull together an estimate of those direct impacts and to a lesser extent, the indirect. Overall, our conservative estimate of the additional adverse impact to earnings in the first half of the year is approximately $40 million, net of the $94 million of compensation we received. If we then adjust our earnings for the first half to strip this impact out, we would get around $195 million in earnings before taxation, certainly a solid result compared to the prior period when we had fewer aircraft out of service. Moving on to Slide 11 and the profitability waterfall; I'll only touch on a few key callouts here. Overall revenue for the period is lower, bearing in mind that the prior period included $45 million of credit breakage compared to only $10 million this year. The prior period also included 3 months of earnings from our gas turbines business which wound down in September 2023. This decline is reflected in contract service revenue. Within other revenue, the significant increase reflects $83 million of the $94 million received in compensation during the period related to the engine issues we're facing. You can refer to Slide 25 in the appendix which shows a detailed breakdown of where the compensation is included within specific line items of the P&L. It also pays to note that around $30 million of the total compensation of $94 million received during the period relates to other financial periods. Perhaps overshadowed by compensation but quite important to note, within other revenue, we saw an 18% increase in ancillary products and services. As Greg mentioned, this is one of the key areas of focus of our PMO strategy. So it's very pleasing to see this kind of growth which helps to offset in part some of the underlying passenger revenue reductions we're experiencing from reduced flying. Moving to the coastlines; we've clearly benefited from lower fuel prices as well as reduced volumes, although there are inefficiencies from not being able to operate a portion of our most fuel-efficient fleet. I'll get into more details on fuel shortly. Partially offsetting the fuel benefit, however, has been the continued inflationary impacts we're seeing across the aviation ecosystem, contributing to approximately $100 million or 5% increases in nonfuel costs in the first half. Those increases are most notable in areas such as landing charges and to an extent, labor and materials costs related to maintenance and catering that impact our passenger services line. Moving to labor. Labor costs were up just under 3% to $824 million. This increase was driven by wage inflation averaging about 5% and an inability to drive as much productivity as we'd want due to the reduced flying program. However, we are making good progress on a number of strategic efficiency initiatives across our various workforces, helped by investments in training, digital tooling and systems. This, in addition to a reduction in our full-time equivalent headcount, has helped offset some of the carrying costs we continue to experience from the engine issues. Within other expenses is a gain on sale of approximately $3 million related to a sale and leaseback transaction we undertook in December 2024 in respect to 4 A320 domestic aircraft. The gain on sale recognized was about $17 million less than we had indicated in our first-half guidance statement in November once we had actually finalized the contractual terms. That remaining value will now be recognized as lower ownership costs over the 6-year term of that agreement. So a similar benefit but a timing issue around benefit recognition. My final point on the slide is that throughout the revenue and cost line items, we see the benefit of our strategic initiatives which are helping to reduce some of the inflationary impacts we're experiencing. These contributed approximately $40 million in EBITDA benefits in the first half of the year. And as we look ahead into the future, these transformational benefits will be important contributors to our financial aspirations. Touching briefly on Slide 12 and our CASK performance. As expected, reported CASK deteriorated by 2.9% in the period, excluding the impact of fuel price, foreign exchange and the residual third-party maintenance costs in the prior period, underlying CASK increased by 6.7%. This increase was driven by continuing cost inflation, particularly in the areas I've just mentioned like landing charges and the diseconomies of scale and inefficiencies from less flying and additional tasks required across our workforces to manage the impact of the engine issues on our business. We have attempted to isolate the impact on CASK from the engine issues in the figure to the right of the slide and believe that CASK for the first half of the year would have been approximately 3% better had it not been for the diseconomies and inefficiencies associated with the engine issues. Frustratingly, the solid strides we are making in our strategic cost-out initiatives are largely eroded by this adverse impact in the current period. Given our expectations that more fleet will be grounded in the second half of the year, we expect underlying CASK to remain under some pressure until we can get our more efficient aircraft back in the air operating. Turning to Slide 13 now which provides an update on our fuel and FX position. For details on the first half of fuel cost and relative performance compared to the prior period, you can refer to Slide 22 in the appendices. We are almost 90% hedged for the second half of the 2025 financial year and about 60% hedged for the first half of the 2026 financial year. As you probably are aware, all our hedges are for Brent crude, meaning that our fuel costs remain exposed to volatility in the refining margin or crack spreads between crude and jet fuel prices. That spread has been hovering around the US$15 to US$17 mark over the past 3 months. Our hedge book is currently structured as collars with an average ceiling or strike of around $76. And as you can see from the fuel sensitivity chart on the bottom right of the slide, there is room for some downside participation. We regularly look to restructure our hedge book to adjust the profile where appropriate. Also on the slide, we've provided our current estimate of fuel costs which assume an average jet fuel price of US$90 per barrel for the second half. We do have a degree of uncertainty around consumption in the second half as a result of aircraft availability issues. For the year, we expect fuel costs will be lower than financial year '24 levels due both to lower capacity and lower underlying jet fuel prices. Included in the assumed full-year fuel cost are our expected SAF purchases which total approximately NZD20 million with NZD 9 million of that recognized in the first half. Those purchases are expected to equate to a 1.5% SAF uplift relative to our overall fuel consumption for the year. Also included in the figure is approximately $38 million related to the domestic ETS with around $19 million recognized in the first half as an expense. Then touching briefly on foreign exchange. Similar to fuel, we hedge our net foreign operating exposures on a declining wedge basis. And while we hedge against a number of foreign currencies, the U.S. dollar is obviously our largest exposure. For the U.S. dollar, we are hedged at approximately 67% in the second half of the year at a rate of $0.60 which is a bit better than current spot rates. Moving on to Slide 14 and an update on our aircraft CapEx profile. We continue to work very closely with Boeing around both our retrofit program and the new GE-powered 787 delivery dates. While there is no change from what we thought at annual results regarding the delivery dates from a financial year perspective, we now currently expect the first 2 new 787s to be delivered towards the end of the first half of the financial year 2026. As we discussed at our Investor Day this past November, we are managing the risk of potential further delays to our new 787s by delaying the exit of 7 777-300ER aircraft for several more years. These aircraft have considerable economic life left in them and are very reliable and capable. In order to keep those 777s flying for longer and to continue to deliver a strong revenue performance, we are intending to undergo a light premium cabin refresh of these aircraft. This work is expected to commence around financial year '27 and have an investment of approximately $120 million to $140 million which we view as an attractive and capital-efficient option for enabling our longer-term growth plans. Moving on to the current and larger 787 retrofit program. We're very excited to be nearing the completion of our first aircraft which, as Greg mentioned, is currently in Singapore going through the overhaul to get the new hard product on board. All things going well, we expect that aircraft to be back in service flying sometime in the fourth quarter of this financial year. We will commence the refit of the remaining aircraft after that and expect the program to be largely completed over the next 2 years. Turning to new aircraft deliveries for this year. We received 1 ATR in December and are expecting a second one in the fourth financial quarter which will support our regional domestic network. Additionally and not included in the CapEx profile as these will be leased aircraft, we'll be receiving delivery of 2 internationally configured A321neos towards the end of this financial year. These aircraft are on 12-year lease terms. The total forecast aircraft CapEx is approximately $3.5 billion through 2029. This is an increase since our 2024 annual results announcement. About $180 million of that increase relates to an assumed weaker New Zealand dollar over this period and the remainder relates to the light retrofit program for the 777s that I mentioned briefly earlier. And just to close out the section, I would note that hedging on CapEx is considered once funding options are finalized. Turning to Slide 15. We continue to take steps this year to align our current metrics towards capital management framework targets. Some specific call-outs on our liquidity, investments and shareholder distribution activities are highlighted on the right side of the slide and most of them are self-explanatory. I'll touch briefly on liquidity, though. The sale and leaseback transaction I mentioned earlier resulted in approximately $190 million in cash proceeds in December. Additionally, in the same month, we elected to release about $290 million of cash collateral with our New Zealand merchant acquirer which we had placed on a voluntary basis. Both helped boost our liquidity levels at the end of the half-year period to about $1.8 billion which includes $250 million in an undrawn commercial revolving credit facility. Now turning to distributions. We have declared a $0.0125 per share unimputed interim dividend which equates to about $40 million. That represents a 69% payout ratio which is calculated based on our rolling 12-month net profit after tax result which is then divided by 2 to reflect the 6-monthly period. In addition, the Board has announced an intention to commence a share buyback program of up to $100 million. This program will consist of an on-market buyback through both the NZX and ASX with a corresponding off-market buyback to maintain the New Zealand government's 51% shareholding. More details of the program have been provided in a separate market release disclosed earlier today. We distinguish this buyback from the ordinary dividend, the latter being linked to profit through a payout ratio. We consider the share buyback a measured and tax-efficient way to deliver value to our shareholders, reflecting our relatively low leverage as well as the company's confidence in our underlying business over the long term. I'd now like to turn back to Greg, who will comment on our capacity expectations and outlook for the remainder of the year.

Thanks, Richard. I will briefly touch on our current expectations for capacity for the remainder of this year. Despite the fact that we have only about 4 months left to go, there is a fair degree of uncertainty as we continue to navigate news on evolving maintenance plans from Rolls-Royce and to a lesser extent, Pratt & Whitney. From a relative perspective, the second half of FY '25 will show a slower year-on-year decline compared to the first half as we began experiencing the impact of the engine issues predominantly in the second half of FY '24. We also have all 3 leased 777-300s in our fleet now but that is offset by the increasing number of 787s grounded due to the global Rolls-Royce Trent 1000 engine issues. Overall, we expect to see a decline in the network but there are pockets that we are committed to building. We may not be able to fly everything we would want at the moment but you can be sure that we will prioritize parts of our network like domestic to ensure the long-term strength of our customer proposition. The airline notes that the 2025 financial year will be the first full 12-month period impacted by global additional engine maintenance requirements on the Pratt & Whitney and Rolls-Royce engines that power its A321neo and 787 Dreamliner fleet. For the second half of the financial year, Air New Zealand's best estimate currently is that it will have up to 11 jet aircraft grounded at times as a result of these requirements. However, the airline notes a large degree of uncertainty exists regarding engine maintenance time frames. In light of these aircraft groundings, the associated diseconomies of scale and inefficiencies and potential compensation, the airline currently expects performance for the second half of the 2025 financial year to be significantly lower than the first half. Given the degree of uncertainty surrounding the number of grounded aircraft across the second half and any associated compensation, the airline is not in a position to provide guidance at this time. As I said in August and reiterated at our Investor Day in November, our focus is on ensuring that Air New Zealand is well-positioned for success once these frustrating yet temporary challenges begin to subside. Our balance sheet is strong, giving us the flexibility to navigate this period without derailing us from our strategic objectives. We continue to invest thoughtfully in areas that benefit both our customers and our people while staying focused on opportunities to deliver sustainable returns to our shareholders. We have full confidence in our CMO strategy and our exceptional team. I'm looking forward to the opportunities ahead as we move beyond the current environment.

Thank you, Greg. That concludes our prepared remarks. Operator, can you please open the line for questions?

[Operator Instructions] And our first question will be coming from Andy Bowley of Forsyth Barr.

Congratulations on our results in a very difficult trading environment. Now I've got a couple of questions for you. And maybe the first one around the engine maintenance issue and the challenges you've got with aircraft availability. Now Greg, in your prepared remarks, you suggested that the situation would get more challenging heading through the second half of this year and into the first half of next year. So I guess, does that mean the worst of the situation will be kind of over at that stage, i.e., let's call it, run rate of June this year? And at that stage, when are you expecting these issues to be fully resolved? I recognize in the select committee hearing last week, I think you said it could still go on for another 2 to 3 years. So I guess if you could give us a little bit of an outlook piece around when we expect engine maintenance issues to be resolved and when will the worst be over?

Yes. Thanks, Andy and I appreciate you dialing in. And I think it was helpful that we had the Select Committee hearing last week and went for 2 hours and we covered lots of topics. So that was good. The first thing I'd say is that I wish we had more visibility from a number of these OEMs as to what was going on. But Rolls-Royce really only operates with what we call a line of balance. So visibility on engines in and engines out on anything from sort of 26, 12 to 26 weeks. And it's frustrating for us because we put schedules in well ahead of time, people start booking a year out. And we have a look at what we call the line of balance and lo and behold, they'll go and make changes. So one of the things that makes it a little bit challenging for all of us and Richard runs a part of our business called integrated planning. So he's got a tribe of people that are looking at schedules is that we have to make some assumptions. If we do get data from Rolls-Royce, in particular, then we'll tend to dial it back a bit and say, well, we think it's going to be X instead of Y. Our best view at this stage from what we can see is that we do head towards 11 in this next 6-month period. I have more confidence in Pratt & Whitney. They currently have about 455 planes AOG around the world at the moment. And progressively, over the next 2 to 3 years, we begin to get aircraft back. So we don't stay at 6 single-aisle jets until 2027. We'll go from 6 to 5 to 4 to 3 to 2. But what we're seeing at the moment is that certainly for the next 6 months is going to be tough. And Richard, I'll hand to you in a minute and you can throw some more color on it. And we hope that progressively then we start to get those numbers to come down. But because the OEMs don't give us great forecasts, we end up having to sort of pull together what we think makes sense. And that's why we're a little bit cautious. To be honest with you, what I have found over the last year that I've been dealing with this specifically is that we are closer to the mark than what the OEMs are. They are more optimistic we are more realistic. Sometimes we find out that we've been even too optimistic ourselves in the last minute we have to make changes which is what we had to do in December, January this year. But I can tell you, I think it progressively gets better. There are solutions in place. Rolls-Royce know what they have to do to fix the train. They've got to get a new blade. The blade has been approved. You then have to get all of those Trent engines to go through a major shop visit. And that's why they don't all get fixed in a month or a quarter because they can only get so many engines done at a time and it's when it's scheduled to go for a shop visit. And in the case of Pratt & Whitney, they've got about 1,000 engines queued up trying to get into these shops so they can basically have a scan to see whether or not they've got an issue. So we push hard for information. We want to be as transparent as we can with you but we're uncertain when all of this ultimately gets fixed but I just want to be transparent with you and say, I think it's going to be another 2 to 3 years before you would listen on this call and we would say, fleet is good. Good news is we've got some new aircraft coming in the middle of next year from Boeing. I don't have the dates completely confirmed. They've slipped a bit. We were hoping to get them sort of February. We think they're now going to be a few months behind that and that's because Boeing is struggling to get their production rate up but we're close to them. I've been over there. The CEO was in town a couple of weeks ago, Kelly. So we know what's happening there. We've got these 3 leased 777s. We've grabbed another couple of engines actually off an air Callon plane as recently as this week. So that will help the Airbus fleet a bit. We bought another engine, a good deal of Pratt & Whitney and we keep looking for everything else that we can lay our hands on. Richard, over to you.

I'm not sure there's much I can add to that. So I think we'll stop there.

So all else being equal, from a FY '26 point of view we're still confident that we've got capacity growth in the system, particularly because of those new aircraft coming on stream.

Yes. We think, as I said, this is -- we're going into the hardest period and then we start to get a lot better when we get into the second half of FY '26. A, instead of the 11, that starts to roll down a bit; and B, we get some new aircraft. Sooner or later, things are going to turn from a headwind to a tailwind. I can feel it.

Now second question from me at the Investor Day. If I'm not mistaken, you used the words green shoots when you kind of referred to parts of the domestic demand backdrop. Now in your remarks earlier, Greg, you suggested that in the domestic side of things, the worst is over. We're through the trough. Now I recognize it's not overly helpful getting too micro in terms of month-by-month or quarter-by-quarter but keen to hear your thoughts around the changes to the demand profile or forward bookings that you've seen over the past 3 months or so.

Yes, I did refer to green shoots. And I do think probably we've hit bottom there and it was good to see the OCR change, a little bit more cash in people's pockets. Leisure actually continues to be decent. We find if we stimulate leisure, there are plenty of people out there who are keen to travel domestically and internationally. But of course, you need to be careful that what you're not doing is profitless prosperity. What I will say is that the government remains hard. And we've referred to the government being down 25% and the government remains down 25%. And I actually don't think Andy, that's going to change in this next 6 months. And everything that I'm hearing and reading and seeing would indicate to me that they're going to keep a tight spend -- a tight rein on their spend. What we are seeing is that maybe in corporate, instead of being sort of down 12%, maybe that's sitting closer to being down 9% and 10% but early days. So that's sort of the green shoots that I would say about domestic and I'll look at you, Richard and say what do you want to add?

Nothing to domestic. It's a good summary of the situation.

[Operator Instructions] Our next question will be coming from Marcus Curley of UBS.

I just wondered if we can extend that, let's say, yield discussion into international. It does feel like the silver lining of not putting aircraft in the sky, it looks like yields are holding up a bit better for you. But I just wondered if you can talk about the yield outlook for international in the next sort of 6 months, given what you're seeing in forward bookings?

Yes. So if we just sort of go across the key route groups. So I think the Tasman, you'll see we've got good load factors and good yield on the Tasman. I think we're not seeing significant improvements in yield, very low single-digit percentages but that's holding up actually pretty well as is the case with Pacific Islands. In the U.S. market, it's a bit of a mixture. We've still -- we've seen some capacity rationalization, although not probably as much as we might have expected to see at the moment. Clearly, the currency is sort of favorable for U.S. inbound. So we are seeing very strong visitor numbers coming out of the states. I think it's one of a small handful of markets that's now tracking ahead of pre-COVID levels in terms of visitor arrivals. And yield is generally holding up. It's pretty strong in the premium cabins from time to time, particularly in off-peak months, you can see a little softness in leisure. But by and large, the states is holding up and Asia continues to perform very strongly, particularly Singapore and Japan. So we're seeing small incremental improvements in yield in that Asia route group, sort of flat in Pacific Tasman and down ever so slightly in North America, offset somewhat by currency.

And I'll just add, Marcus and we won't go month by month, obviously but there is a shift in Easter this year versus last year. So you should expect to see a year-on-year decline in March but then see that made up for or more than made up for potentially in April given the combination of Easter and school holidays.

And then just on credit breakage, can you talk a bit about how much you think there is still to book and what you think would occur in the second half of '25?

Yes, happy to talk about that. So we've still got in terms of unused credits, we've got a bit north of $170 million of those, of which we have taken to breakage so far, $100 million. So you got sort of $74 million left to go. At the current rate of consumption, we still have $60-odd million left to go this time in a year which is effectively when the program comes to an end. So at some point over the next sort of 12 months, we've either got to see the rate of consumption increase or versus where it is today or there's another $60-odd still to deal with at some point over the next 12 months.

So the second half feels like something around $14 million and then up to $60 million in FY '26.

It will be -- I think you can assume it will be more than what we've taken in the first half and the result we've just announced in the first half, it will be more than that but a lot of it is going to depend on patterns of behavior over the last year as people get close to the finish line and we'll obviously be promoting aggressively the need to be able to use them up. So we have to just see what behavior transpires over the next 6 or 12 months. But I think you can reasonably expect breakage will be higher than we've seen in the first half of this year anyway.

And then you obviously highlighted the strong cargo performance which was volume-led. Do you think there's much more upside in that given it is volume-led and you don't have a lot of extra aircraft in the sky for the foreseeable future?

Yes, it's a good question. Look, I think there is still an upside in cargo as we look forward. The team are doing a really good job of sort of securing market share managing loads. We've seen a significant increase in trans-shipment volumes between Asia and the States, interestingly enough which will be a function, I think, of the fact that there's so little direct capacity between China and the U.S. at the moment. And that is unlikely to change. There's been a sort of a slight easing of that in the last 6 months but our performance has improved, notwithstanding that. So I think there is some sort of further upside potential there, Marcus.

I also would add, Richard, that -- and this won't make a dramatic impact in terms of revenues but we continue to invest in that area and we actually have a new cargo revenue system going in literally in a matter of weeks. And the guys have done a good job putting that in place. It's, I think, going to continue to enhance incrementally what we're doing there. And then, of course, at a point in time, we'll invest in a reasonably significant facility with cargo. But I think the team are matured well. I think they are doing a good job and we're giving them some more digital tools to help improve the performance.

I would just add that cargo is not dissimilar to our passenger revenue network, Marcus. So, the second half seasonality is generally lower than the first half given December is in the first half with all the Christmas shipments and whatnot. So, you should -- maybe that will help you take that into account as well.

Great. And then finally, just on the buyback, would you see this as a one-off reflection of the extra liquidity that you have achieved through some of those initiatives you mentioned at the beginning of the presentation or is it -- would you describe it as more of an ongoing program over future years?

Yes. Look, I think, Marcus, I would characterize it more in the latter camp which is we have got a sort of a criteria capital management framework within which we are operating. We will get this one done and then sort of re-evaluate where we are in 12 months' time based on the success of the program and sort of where we are tracking versus that framework.

Does the government participate?

Yes.

Yes, they have got a 51% shareholding and although that they sort of like to maintain it at that level.

The government will participate through an off-market mechanism, Marcus which is in some of the disclosure documents that followed our interim results announcement. And if you have any questions on that, happy to take that offline after the call.

The intention, Marcus, is for them to sort of sit at their current shareholding level.

[Operator Instruction] Our next question will be coming from Nick Mar of Macquarie. The line is open.

Just on those compensation, is it sort of linear in terms of how they do it based on how many aircraft are out and timing of that or is it just going to be a little bit sort of patchy about when it comes through [ph]?

That's a good question, Nick. And there's no simple answer to this. Part of the conversation that we have received in the first half is nonlinear. It actually relates to sort of fuel burn guarantees and other things that we have not had the benefit from in prior periods. So, there's an element of that in this half. The rest of it is somewhat linear in the sense that it's a direct -- what we get paid is a direct function of how many engines the lower sort of plus 1 spare level we are suffering at any point in time. And so that's linear in that sense. To Greg's point, the sort of challenge in predicting this and the reason why we have sort of ultimately chosen not to give guidance at this stage in the second half is Rolls-Royce are unclear with us about where that line of balance is tracking over the next 6 or 9 months. We have got a view on it. Our view is sort of more conservative than theirs but it is somewhat variable. So, it's probably unhelpful answer but it's the reality of what we are dealing with.

Just actually one other point I would make on that, Nick and really to Andy's first question which is when you see this improving. If we believed roles, they think that we will be in good shape. The global fleet will be in a no AOG situation from January 2026. We think that, that is impossibly unrealistic. So we will see what happens.

They did, Richard, assure us we were going to be in that position in January 2025, too. So hence, why we are a little bit conservative. Professional scepticism.

And then, just on the transformation -- just on the transformation benefit in terms of some of the kind of key buckets, are they all sort of tracking as you originally kind of planned? You mentioned there will be some over and over time as things work and don't work. Just interested in what's been most beneficial so far?

Yes. The short answer is they are tracking basically as we expected. There's the odd under and over but I am feeling pretty good about it. I am feeling good about work that we are doing with ancillary. I am feeling pretty good about how I am seeing cost out operate and come to fruition. I am also pleased with some of the larger transformation projects that we have done. We have done a good job of getting that loyalty system completely re-plat formed. Last week, we turned on a new catering system which is now operating to, I don't know, 6 or 7 ports. And then next week, it goes to more ports and we are doing these things and by and large, without any hitches. So, I am pleased with that. Of course, the transformation benefits do start to ramp up. What I can tell you is that it is a big feature of our P&L reviews, company performance reviews that we do monthly and all the key leaders spend about 3 or 4 hours with Richard and I and there's a robust meeting that occurs and we track those benefits and we hold ourselves to account. So short answer, we are looking good, seeing some good improvements. I have shared some of those with you. Larger transformation projects are going well. We know it ramps up. We are aware of that. We have got the team in place and the process in place to manage it.

One moment for our next question. And our next question is a follow-up from Marcus Curley of UBS. Your line is open.

I just wanted to follow up on Nick's sort of question. So is it right to assume that you should receive some level of compensation from Rolls-Royce each 6 months until this issue is resolved?

Correct.

That's correct. But the quantum of that is what is being determined as we are sort of debating this line of balance issue as Greg mentioned at the beginning of the call.

And obviously, part of this was previous period compensation. But -- and I appreciate your comments around some of this being nonlinear. But is the starting point what we have just seen? And then as the aircraft comes back, it should moderate down. Is that from a -- just from a modeling perspective, is that the right approach?

Yes. Theoretically, as we start to move from -- in the case of Rolls-Royce or Pratt & Whitney, as you start to move from sort of 5 Dreamliners out to 4 Dreamliners to 3 Dreamliners, then we would expect to see less compensation because we are doing more flying. But as Richard said, there is a component of the result for this last half that applies to prior periods which was, if you like, a catch-up on fuel burn guarantees, etcetera. It's a robust discussion relationship that we have with roles in particular and that continues. There will be some fluidity around that. But in essence, it will operate the way that you said. And at a point in time, depending on how Pratt & Whitney goes, we may well end up having a further discussion with them if it goes on for longer. But the good thing is those telephone lines are open and we meet with them pretty regularly. And in the case of Pratt & Whitney, of course, we have got a big relationship with them because we are doing a joint venture, spending what circa $150 million with them down in Christchurch, expanding that facility and enabling us in time to actually be able to do maintenance on the very engine that we are having problems with at the moment.

And maybe I can just draw you on the second half in terms of profitability. If you stripped out engine compensation, would you expect the business to be profitable in the second half?

Yes, I would. I would but just picking up on that, Marcus, we have said sort of in the first half of the year, net of compensation, we think the drag on the economic drag on the business was about $39 million, $40 million in the first half. We do have, as you well know, sort of a seasonal weighting. First half is typically more profitable than second half. In the second half, we have got sort of 2 other -- there's actually 3 things that are going to sort of impact us disproportionately in the second half of this year. In no particular order, we have got a strong US dollar. So obviously, I mean, we are hedged on OpEx but not 100% and that will roll off. So we will have higher New Zealand dollar costs in the second half, number one. Number two, in May and June this year on the fourth financial quarter, actually, we have got a little bit more just due to the timing of engine maintenance, we have got a higher maintenance burden in the third and fourth quarter of this year than we had last year. And then, of course, as Greg has mentioned, we are going into the second half of the year with more AOGs than we had in the first half of the year or at least planning for that at this stage. So they will be drags on performance. But the short answer to your question is if we are operating in a normal environment, we would be making money in the second half, unquestionably.

And I am showing no further questions. I would now like to turn the call back to Greg for closing remarks.

Okay. So, thank you for joining us today everyone. I appreciate you listening in and your support of Air New Zealand. If you want to schedule a call or a meeting for any follow-up questions, please direct those requests through to Kim and our Investor Relations team. Thanks for joining.

And this concludes today's conference. Thank you for participating. You may now disconnect.