Aviation industry pleads for bailouts in face of ‘existential threat’
Airlines and airports are urgently seeking government support to prevent the complete collapse of the aviation sector amid the covid-19 pandemic.
In an effort to minimise transmission of the novel coronavirus, many countries have locked down their borders and strongly advised against non-essential travel and contact. Aviation is among the industries facing near extinction in the face of the pandemic.
The Australian-based aviation research organisation, the Centre for Aviation (CAPA), has warned that this “completely unprecedented” lack of demand for flights – driven by governments discouraging citizens from flying – means most airlines will be bankrupt by the end of May.
“Many airlines have probably already been driven into technical bankruptcy or are at least substantially in breach of debt covenants,” CAPA said. “Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full.”
It called for governments to work with the industry “if catastrophe is to be avoided”.
The International Air Transport Association has estimated that international consumer airlines will lose up to $113bn (£92bn) in revenue during the pandemic (this forecast does not take into account travel restrictions imposed by the US and EU).
Airlines around the world are in the process of grounding the vast majority of their flights as they scramble to minimise losses. Virgin Atlantic will ground 85 per cent of flights and has told staff to take eight weeks of unpaid leave. Virgin Group chair Peter Norris has written to the Prime Minister calling for a £7.5bn aid package to support the aviation industry through the pandemic. British Airways – which said that it is “fighting for survival” – plans to ground 75 per cent of its flights in April and May. Norwegian Air will ground 85 per cent of flights and lay off more than 7,000 employees temporarily. Air New Zealand will reduce its international flights by 85 per cent and make 30 per cent of its staff redundant. Exeter-based regional airline Flybe went into administration earlier this month, unable to manage the sudden impact of covid-19.
The three largest international aviation alliances – oneworld, Star Alliance and Sky Team – have released a joint statement calling on governments and stakeholders to take action to support the industry through the pandemic. Together, the three alliances represent airlines contributing more than half of global airline capacity. They have suggested that regulators could help by temporarily suspending slot regulations and landing fees to reduce pressure on airlines.
“The unprecedented circumstances triggered by the coronavirus outbreak pose an existential threat not only to the airline industry but more generally to global trade and commerce and social connectivity,” said Star Alliance CEO Jeffrey Goh. “As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”
Meanwhile, the trade group Airlines for America has requested more than $50bn in financial aid from the US government, including loans and loan guarantees, grants and tax relief. The group estimates that most airlines will be teetering on the brink of bankruptcy by the end of the year without such assistance.
“US carriers are in need of immediate assistance as the current economic environment is simply not sustainable,” Airlines for America said in a statement. “This is compounded by the fact that the crisis does not appear to have an end in sight.”
CNN reports that the financial aid has been discussed with key lawmakers and staff and that the government acknowledges that the situation is “getting very bad, very fast”. Bloomberg reported last week that the White House was considering letting airlines keep certain taxes and fees which would otherwise be collected to support airports. Earlier this month, airlines had taken the stance to lawmakers and investors that they were not seeking any kind of government assistance
Reports also suggest that the trade group representing American airports is also requesting a separate $10bn in financial aid from the government.
President Donald Trump has publicly backed the aviation sector, commenting during a press briefing that: “We’re going to be in a position to help the airlines very much. We’ve told the airlines we’re going to help them. It’s very important.”
Representations of airports have also warned that the sector faces collapse, with the CEO of the Airport Operators Association (the British trade group for airports) calling for emergency financing, leniency from banks, and suspension of business rates and other taxes on airports.
“Governments across the world are supporting their national aviation industries, as many parts of the global travel industry have come to a halt,” said Karen Dee. “As some airlines call on the UK government to act similarly, we are clear that airports will shut down in weeks unless urgent action is taken to support the industry.”
Sign up to the E&T News e-mail to get great stories like this delivered to your inbox every day.