Ann: GENERAL: FRE: Freightways announces aircraft fleet upgrade

• Release Date: 26/06/15 08:37
• Summary: GENERAL: FRE: Freightways announces aircraft fleet upgrade
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					FRE
26/06/2015 08:37
GENERAL
PRICE SENSITIVE
REL: 0837 HRS Freightways Limited

GENERAL: FRE: Freightways announces aircraft fleet upgrade

FRE announces that it will transition from its current fleet of Convair
freighter aircraft to Boeing 737-400 freighter aircraft between February and
May 2016. The benefits for FRE of this new airfreight service include:
o Increased airfreight carrying capacity
o Faster sector speeds
o Savings in annual capital and operating costs
o Modern navigational systems
o Reduced carbon emissions per item of freight carried

Key points relating to this initiative are:
o FRE subsidiary, Fieldair Holdings Limited (FAH), will form a Joint Venture
(JV) company with Airwork Holdings Limited (AWK) that will operate three
Boeing 737-400 freighter aircraft to replace the airfreight service currently
performed by FAH's subsidiary, Air Freight NZ Limited, which uses five
Convair freighter aircraft.
o AWK will lease the three 737-400 freighter aircraft to the JV company.
o The JV company will operate the aircraft.
o Customers of the JV company will be FRE's express package businesses and NZ
Post's Express Couriers Limited (ECL) business. If demand warrants it,
capacity will be made available to other freight operators.
o The 737-400 freighter aircraft will provide sufficient capacity to
accommodate the expected future growth of FRE's express package volumes.
o FRE's existing Convair fleet will be made available for sale upon the
transition to the 737-400 freighter aircraft.
o The carrying value of FRE's Convair fleet and related spare parts has been
written down by $7.6 million to reflect the realisable US dollar (USD) value
of the fleet and parts at the current USD foreign exchange rate. The carrying
value of the Convair fleet had previously been based on the exchange rate
applicable at the time the last Convair was purchased in 2003 and supported
by the fleet's value in use to FRE.  The decision to transition from and sell
the Convair fleet triggered the need to assess realisable values for
accounting purposes and to reflect those values at the prevailing exchange
rate. As a non-recurring and non-cash expense this write-down in value will
not impact on FRE dividend payments to its shareholders.
o To transition to the new airfreight service, including redelivery of a
currently-leased aircraft, capital expenditure of $1.7 million and transition
costs of $1.35 million will be incurred.
o The financial benefit to FRE is primarily related to cash savings in
capital expenditure of approximately $3 million per annum and incremental
savings in annual operating costs.

Background
FRE express package businesses provide an overnight, inter-island airfreight
service to their customers. To enable this service, FRE operates its own
dedicated airfreight service from airport/road hubs at Auckland, Palmerston
North and Christchurch. FRE's aircraft fleet consists of 4 owned Convair
CV580 aircraft and 1 leased Convair CV5800 aircraft. The Convair fleet has
provided a good and reliable service since its introduction into New Zealand
in 1989.

As express package volumes have grown, demand for the earlier positioning of
airfreight through the airport hubs has increased. In order to sustain the
levels of service required by its customers, FRE has for some time been
exploring alternative aircraft options. The 737-400 aircraft are deemed by
FRE to be the most suitable alternative aircraft to the current Convair
fleet. The 737-400 aircraft operate with a net payload of approximately
17,000kg compared to a typical Convair CV580 net payload of 6,500kg. The
737-400's will provide sufficient capacity for the future expected growth of
the overnight airfreight market in New Zealand for many years to come. The
737-400's are fitted with modern avionics equipment that is compliant with
Airways Corporation requirements for navigation equipment used throughout New
Zealand and will be for the foreseeable future. Additionally, carbon
emissions per item of freight carried compared to the current use of the
Convair fleet are expected to reduce.

FAH has operated in New Zealand's general aviation and engineering
maintenance market since 1951 and since 1989 as an airfreight operator for
FRE. FAH will continue to service its other maintenance and flight operations
customers from its bases in Palmerston North, Auckland, Christchurch and
Wellington, while also participating in the JV company.

AWK is an experienced operator of Boeing 737 aircraft and has recently
purchased a number of 737-400 passenger aircraft that will be converted to
freighters in the United States. A JV that matches FAH's and AWK's respective
aviation expertise pragmatically aligns the capability of each business.

Conclusion
This new airfreight service will deliver positive service and financial
benefits to FRE's stakeholders.

For further information please contact:

Dean Bracewell
Managing Director
Freightways Limited
Ph: (09) 571 9672
Fax: (09) 571 9671
End CA:00266197 For:FRE    Type:GENERAL    Time:2015-06-26 08:37:21