FILE PHOTO: An Air New Zealand plane is seen taxiing from the international terminal at Sydney Airport, in Sydney, Australia, November 29, 2021. REUTERS/Loren Elliott/File Photo

By Rajasik Mukherjee and Sherin Sunny

(Reuters) -Air New Zealand posted a smaller-than-expected drop in full-year profit on Thursday, but warned that ongoing engine maintenance issues and sluggish domestic demand would continue to pressure earnings in the current financial year.

The airline cautioned that its first-half pre-tax earnings for fiscal 2026, ending December 31, 2025, would be flat to lower than the NZ$34 million ($20 million) reported in the prior six months, and a sharp fall from NZ$155 million earned a year earlier.

The 2025 financial year was the first full 12-month period hit by additional global maintenance requirements on Pratt & Whitney and Rolls-Royce engines.

Chief Executive Greg Foran said unforeseen delays in essential engine maintenance forced the grounding of 11 aircraft in the carrier's Airbus neo and Boeing 787 Dreamliner fleets.

Air New Zealand received NZ$129 million in compensation from the engine manufacturers, but estimated that pre-tax profit could have been NZ$165 million higher if operations had run as scheduled, the CEO said.

Foran will step down as CEO in October, with insider Nikhil Ravishankar named as his successor last month.

For the year ended June 30, the airline posted earnings before tax of NZ$189 million, topping a Visible Alpha consensus estimate of NZ$178.6 million, but below last year's NZ$222 million.

That, however, marked its weakest earnings in 13 years, excluding pandemic-driven losses between 2020 and 2023, per Reuters calculations based on data compiled by LSEG.

Still, traders took a 'glass half full' view of the results, according to KCM Trade chief market analyst Tim Waterer. He noted that the airline managed to post profit at the higher end of expectations despite worries about domestic demand.

Shares ended flat for the day.

Air New Zealand declared a final dividend of 1.25 New Zealand cents per share, unchanged from last year.

($1 = N$1.7033)

(Reporting by Rajasik Mukherjee, Sherin Sunny and Keshav Singh Chundawat in Bengaluru; Editing by Sumana Nandy, Alan Barona and Sonia Cheema)