MIAMI – The worldwide commercial aviation industry would need government aid and bailout measures of about US$150bn and US$200bn to face the COVID-19 crisis, according to the International Air Transport Association (IATA).
By March, several airlines have entered administration with new groups emerging, cutting more than a half of their capacity, grounding and delaying aircraft and offering unpaid leaves and temporary layoff to their employees.
It has become evident for carrier’s that big financial measures are needed, “timing is critical. We are in a liquidity crisis and we ask governments to act urgently,” said IATA’s Director General and CEO, Alexandre de Juniac.
“We want to maintain an airline sector that can cope with this crisis and ensure that the recovery happens with appropriate speed,” requested de Juniac as a crucial action led by global governments while estimating an amount between US$150bn and US$200bn.
De Juniac also stated that once the crisis passes, airlines will remain weak and will need conditions to return to their normal situation; thus, he encouraged authorities to give bailouts, loan guarantees, bond-market support and tax breaks to help them to recovery.
IATA’s aid estimations come after Airlines for America (A4A) said on the same week that US carriers would need an aid of US$58bn.
Additional concerns not previously expected
Some authorities have offered investment to boost the tourism and passenger traffic as the situation worsens for carriers: Italy’s government plans to nationalize Alitalia (AZ) while Indonesia’s government and AirAsia (AK) both plan big a big sales.
However, there are other recent concerns with Airbus and Boeing being in talks to receive state support, after the first temporary shutdown its intallations in Spain and France to comply with hygiene requirements.
IATA’s Chief Economist, Brian Pearce, stated that the challenge to the airline industry is now the extension of the period of recovery as the virus spreads globally.
“The question is whether airlines can last that long without support. Large parts of the industry might not be there because they are running out of cash,” added Pearce.
According to IATA, only about 30 airlines worldwide of the 290 that it represents, have reasonably healthy debt and earnings, but the entity warned that even big carriers probably have enough cash only to stay operative for a few months without financial assistance.
On March 5, IATA forecast a revenue loss of US$113bn; however, “the assumption was that airlines would face a Chinese-style fall on demand, but not a near-full closure. The situation is worse than we thought it would be,” said Pearce.
Regarding the already state support interventions for carriers in Singapore, South Korea and China and governmental aid statements by the US, UK and European Union (EU), de Juniac said he was “pretty satisfied” that executives were listening as IATA is “pushing hard” to get the necessary aid into play.
Actions within the industry
Lufthansa AG, owner of Lufthansa (LH) will not receive investment from Moody’s after its bonds due in 2024 went down ten cents on the euro to 78 cents, according to Bloomberg. The investor also cut the rating of Easyjet (U2) and is reviewing the British Airways (BA) and its parent IAG situation.
Connect Airways fell into administration following the Flybe (BE) collapse, also affecting Stobart Air (RE) and Aer Lingus (EI). In contrast, the carrier SAS (SK) will get US$300m in state guarantees from Sweden and Denmark.
As part of the nationalization plan of AZ, the Italian government included in the move US$658m even as the airline was in bankruptcy protection and had cost taxpayers about €2.1bn.
At the same time, the French and German governments discussed a recapitalization of Air France-KLM, which involves AF and KL carriers.
The EU already waived to the slot rule and introduced a non-essential EU travel’s draft and also proposed flexibilization on state handouts to help industries grapple with the fallout of the COVID-19 epidemic.