Cash-strapped Air New Zealand must pay $40,000 for a ”serious” breach of NZX rules covering the disclosure of material information.
The NZ Markets Disciplinary Tribunal has found the airline earlier this year didn’t release market-sensitive information when it became aware of it and making information public before informing the NZX.
In its ruling the tribunal details information released about the impact of Covid-19 on the airline leading up to the afternoon of June 5 when Air NZ chief executive Greg Foran told staff, Airpoints members and ”selected media” about a three-phase plan for the next 800 days.
The three phases were labelled Survive, Revive, and Thrive, as previously reported by the Herald. A key facet of the Survive phase was Air New Zealand’s plans to further reduce its labour costs (in addition to those announced on May 26 by around $150 million, including implementing reduced hours, leave without pay, job sharing, voluntary exits, and potentially redundancies.
This release was not announced via NZX’s market announcement platform (MAP).
Instead, it was released sequentially to staff, to selected media, and to New Zealand-based Airpoints members between 12.46pm and 3.26pm on the afternoon of 5 June.
Following contact by the NZX a materially similar announcement to Foran’s message was released through the MAP at 8.30am on Monday, June 8.
NZX launched an investigation into whether the release of the CEO’s message was material.
After investigation, the NZX concluded that the labour cost reduction target mentioned in the message was material information, and so the airline had breached its obligations by not releasing it promptly and by releasing this information through means other than MAP.
The tribunal notes the airline had provided frequent market updates relating to the impact of the pandemic on its business and its operations.
”The breach took place in the context of unique and extraordinary pressures on the business as a result of the Covid-19 pandemic. The uncertainty surrounding the duration, scale and impact of the pandemic, and the rapid changes required to respond to evolving Government measures, have had a particularly significant impact on the airline industry.”
The airline accepted it had breached its obligations.
The tribunal ruling said a breach relating to continuous disclosure is a breach of a fundamental obligation.
”Compliance with these Rules by Issuers is essential in maintaining market integrity and investor confidence.”
The breaches were serious and could result in a penalty of $500,000.
The tribunal considered that there were aggravating factors in this case:
• Air New Zealand didn’t observe its own continuous disclosure policy when finalising theJune 5 communication, nor did it refer the communication to its disclosure committee. NZX considers that had internal policy been followed, this breach would have been prevented.
• NZX had published specific guidance in respect of disclosure in light of the COVID-19 pandemic shortly before the breach occurred, so AIR was on notice of the potential materiality of a labour cost reduction operating cost decision. Further, AIR had released previous updates via MAP on reducing its labour costs.
• NZX advised that 2520 trades in AIR shares occurred on the afternoon of 5 June 2020 while there was information asymmetry in the market. The airline’s share price rose significantly onJune 8, although NZX considers that a pattern of price surges within the global aviation industry across June 5 toJune 8 contributed, in part, to this movement.
Mitigating factors include:
• Air NZ did not itself benefit financially from the breach.
• Once the issue was identified, it was promptly addressed. The total duration of the information asymmetry was short (4 hours and 44 minutes).
• NZX considers that there is no evidence of any financial benefit or financial harm caused by asymmetrical trading on the afternoon ofJune 5.
• The breach appears to have been inadvertent, although the airline didn’t follow its own continuous disclosure policy.
”The tribunal has taken into consideration in its decision to approve the settlement that the breach occurred during a period of significant uncertainty, particularly for those in the airline industry, arising from the Covid-19 pandemic.”
Taking the aggravating and mitigating factors into account, the tribunal considers that while the breach warranted a penalty at the low end of the available range, together with a public censure.
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