The Government will provide a loan of up to $900 million for Air New Zealand.
The facility comes with a number of conditions including the possibility of the Government expanding its 52 per cent stake in the airline.
Finance Minister Grant Robertson also didn't rule out further bailouts, but said Air NZ was confident that the current arrangement would ensure the airline's financial viability.
The Government was looking at other critical businesses in New Zealand, but he was not in active conversations with any other company about other bailouts
The Air NZ deal will provide the airline with the ability to draw down on funds should its cash reserves drop below a minimum threshold, providing additional funds if cash reserves are not at a satisfactory level.
The facility will be provided in two tranches – a tranche of $600m with the interest rate initially expected to be between 7 per and 8 per cent per annum and a second tranche of $300m with an effective interest rate initially expected to be in the order of 9 per cent.
Robertson said the interest rates were based on advice and considered "reasonable and appropriate in the current environment
The facility will be available for a period of 24 months. The effective interest rates on both tranches will step-up by 1 per cent if the facility remains after 12 months. This debt funding will be used to support the airline's business operations as it manages the implications of various government border restrictions and substantial reductions in travel demand.
Air New Zealand's board believes that, given the highly uncertain environment that exists, the cancellation of its 11c dividend is in the best interests of the airline, including because that action is a pre-requisite to the availability of the facility.
Other terms of the agreement include:
•a prohibition on payment by Air New Zealand of any dividends or other distributions to shareholders (including the Government) while any amount is available to be drawn under the facility.
•the giving of security for the loan by Air New Zealand and certain of its subsidiaries over their assets (subject to certain exceptions)
• the Government having the ability to seek repayment through a capital raise by the airline after six months or converting the loan to equity (subject to compliance with laws and any necessary regulatory and/or shareholder approvals).
•Air New Zealand giving various undertakings, representations and operational and informational and other undertakings, and typical events of default.
• NZX Regulation has granted Air New Zealand waivers from the requirements under the NZX Listing Rules to obtain shareholder approval for entry into and performance of the facility with the Government (as a related party of Air New Zealand).
•those waivers were granted because of the recent, extraordinary decline in Air New Zealand's market capitalisation.
There has been an arms' length negotiation in relation to the facility, and that the Government has not influenced Air New Zealand's decision to enter into the facility.
Both Air New Zealand and the Government acknowledge that the terms of the facility do not alter the fundamental principles of their relationship, with the airlines board, chief executive Greg Foran its executive maintaining responsibility for all commercial and operational decisions of the airline.
Separately the Government is working with Air New Zealand to ensure other key services can be provided, including repatriation flights, maintaining critical cargo transport lines and having airline staff assist the health response.
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.
Robertson said the arrangement meant that Air NZ could continue to operate, but given the unprecedented shock to the global aviation industry caused by Covid-19, Air New Zealand will still cut jobs.
"The Government is actively working with Air New Zealand on what can be done to support these workers," he said.
"This agreement means that Air New Zealand is in a position to play its part in making sure Kiwis can return home from overseas and that essential flights and freight lines for goods like pharmaceuticals remain open by ensuring flights continue to and from key international destinations. The agreement also safeguards the domestic network, with flights assured to all current destinations."
The airline's chair Dame Therese Walsh said Air New Zealand was ''greatly appreciative'' of the Government's support
''The Government and Treasury moved swiftly to ensure that Air New Zealand had financial certainty as demand for flights domestically and internationally has rapidly fallen due to travel restrictions implemented by countries around the world.''
The loan facility ensured that Air New Zealand could continue to play a vital role in connecting New Zealanders and businesses with each other at home and around the world, she said.
Air New Zealand has been on a trading halt since Monday for what the airline said was the need to assess the operational and financial impact of the Government's travel restrictions.
Its shares have halved in value since the beginning of the year from $3.09 to $1.54 when they last traded on Friday. This has wiped about $1.7 billion off the market capitalisation of the company.
Air New Zealand is slashing its international network by 85 per cent and there will be deep cuts to other parts of its operation.
Up to a third of its 12,500-strong workforce could be laid off.
Although the circumstances are much different, the loan lifeline has some echoes of $885m government bailout in 2001when the airline nearly collapsed.
That consisted of a $300m loan and buying $585m of new shares.
The loan was converted to equity in 2005 following a $186m rights issue the previous year when the government bought another $150m of shares to give it 80 per cent ownership.
Since then the airline has repaid dividends the government of $1.4 billion.
As a result of the coronavirus, Qantas and Virgin Australia will later this month suspend all international flying. Qantas has said there may be some ad hoc flights and it will maintain its air freight operation.
Around the world airlines are failing. In the United States Compass Airlines, a regional carrier that flies for American and Delta said it is shutting down as demand tumbles. Britain's Flybe has already failed.
The big airlines in the US are pleading for more than US$50 billion in government aid.
Lufthansa has already held talks with the German government about providing special loans and has grounded 700 planes.