(Corrects to say "flag carrier", not "flagship carrier", in paragraph 5)

(Reuters) -Air New Zealand ( ANZFF ) posted a smaller-than-expected drop in 2025 full-year profit on Thursday, but warned that ongoing engine maintenance issues and sluggish domestic demand would further 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, a sharp fall from NZ$155 million earned a year ago.

Shares rose 0.9% to NZ$0.590 as of 0031 GMT.

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

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

The airline received NZ$129 million in compensation from the engine manufacturers, but estimated that pre-tax profits 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, earnings before tax came in at NZ$189 million, topping Visible Alpha consensus estimate of NZ$178.6 million but below last year's NZ$222 million.

It was the carrier's weakest earnings in 13 years, excluding pandemic-era losses between 2020 and 2023, per a Reuters calculation based on data compiled by LSEG.

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

($1 = N$1.7033)