Airlines warn they may not survive without bailout

[andypspotter]

The bosses of EasyJet and Lufthansa have said some airlines may not survive without government support if the coronavirus pandemic drags on.

The warnings came just hours after Qantas became the latest major airline to cancel its international flights.

At the same time India is reportedly preparing a rescue package to support its carriers.

It comes as airlines around the world are being forced to cancel services as travel demand dries up.

"The longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid," said Lufthansa chief executive Carsten Spohr.

Lufthansa has already held talks with the German government about providing special loans.

Mr Spohr's comments were echoed by the boss of UK carrier EasyJet, Johan Lundgren, who also warned that airlines could go bankrupt without state aid.

"If you take EasyJet as one of the more stable operators in normal times, if this goes on for an extended period of time you're going to have a lot of failures around the airline industry," Mr Lundgren told the BBC's Today programme. "I have been working in the industry for 30 years and I have never seen anything like this."

India may be set to join a growing list of governments offering aid to its aviation industry. The Finance Ministry is considering a proposal worth up to $1.6bn (£1.4bn) that includes temporary suspension of most taxes levied on the sector, according to reports.

Earlier on Thursday, Qantas became the latest major airline to cancel international flights as it struggles during the pandemic. The carrier said it would send home two-thirds of its 30,000-strong workforce.

The Australian flag carrier and its low-cost unit Jetstar will suspend all overseas flights from late March to at least the end of May.

"Demand has evaporated," Qantas chief executive Alan Joyce said in a note to employees. "We have no work for most of our people. We have to make difficult decisions to guarantee the future of the national carrier."

The airline industry is facing its biggest crisis since the September 11 attacks almost two decades ago, with several airlines on the brink of collapse.

"If you were not financially healthy going into the crisis, then you are very vulnerable now," said Greg Waldron at Flight International magazine. "What we are seeing is unprecedented."

[slideman]

I had to chuckle when I saw this, Andy, are you the potential savior of the Airline industry ?


Last Updated: Airlines warn they may not survive without bailout by andypspotter

[andypspotter]

Virgin Atlantic is expected to ask for a government bailout worth hundreds of millions of pounds in the coming days, the BBC understands.

Requests for state aid are also expected from other airlines.

The Government has said it will only step in to help struggling airlines "as a last resort" and on a case-by-case basis.

UK-based airlines have already announced measures to save money such as temporarily laying-off staff.

Virgin Atlantic had previously suggested the Government offer UK carriers £7.5 billion in credit facilities.

The airline's founder Sir Richard Branson this week offered to inject £250 million into the Virgin Group, with most of that amount going to the airline.

The vast bulk of flights to and from the UK have been grounded amid the coronavirus pandemic.

Some airlines like British Airways are still operating a number of rescue flights to bring stranded Brits home.

Earlier this week, the government said it would not deliver a financial aid package for the aviation industry, but its emergency business measures, including a Bank of England scheme for firms to raise capital and employee wage subsidies, were available for airlines.

But industry group the International Air Transport Association (IATA) warned of an "apocalypse" in the aviation sector as it called on governments around the world for help.

The US Senate on Wednesday passed a $58 billion (£46.6 billion) aid package for its airline industry, which included cash for paying pilot, crew and staff salaries.

To bail out, or not bail out?
You'd be forgiven for being confused about whether the Government is going to bailout UK-based airlines, or not.

First ministers indicated that an industry-wide bailout was on the cards.

Virgin Atlantic went public and said £7.5bn was needed.

But then an about turn from the Chancellor.

Rishi Sunak wrote to airlines and airports telling them that an industry-wide emergency rescue package for the aviation industry wasn't on its way after all.

What the Government is offering is bespoke financial support on a case-by-case basis, but only once airlines have exhausted all other options.

Ministers want to be sure that wealthy shareholders play their part.

The other reason an industry-wide package didn't happen was because the airlines involved are ultimately rivals and where as some of them were champing at the bit for a Government loan, others were against it.

The more cash-rich the airline, the less keen on a bailout.

And, for some, cash is the immediate problem.

[andypspotter]

A group of 38 MPs has written to Chancellor Rishi Sunak urging him to take steps to support airlines during the coronavirus pandemic.

Aviation bosses have been lobbying the government for a targeted aid package to stop firms going under as a result of the slump in travel demand.

Airline industry chiefs welcomed the MPs’ call and said the sector was “entering the danger zone”.

Requests for state aid are expected from Virgin Atlantic and others.

But so far, Mr Sunak has said airlines should find other forms of funding and not turn first to the government.

A battle to survive
Broadly-speaking, the aviation sector wants two things from government.

Firstly, cash-strapped airlines and airports need emergency loans.

Despite passenger flights largely grinding to a halt, airports plan to remain open so that cargo flights, repatriation flights, some military flights and other commercial, police, rescue, Royal Mail and offshore oil and gas flights can still operate.

The fixed costs associated with keeping an airfield open (security, policing, fire service, air traffic control) are high.

Airlines have grounded planes but they still have to pay to park and maintain them. Airlines also lease some of their aircraft for eye-watering sums.

The second ask from the aviation sector is that the government suspends a number of taxes and regulatory charges.

For example, the Civil Aviation Authority is funded entirely by the industry. The industry wants the government to cover that cost, as well as Air Traffic Control charges, for the rest of the year.

When the crisis is over, they also want the Air Passenger Duty tax suspended for six months.

The MPs said in their letter that the impact of coronavirus on UK aviation had been “severe and truly unprecedented”.

They pointed out that global demand for travel had collapsed, noting that markets with severe travel restrictions in place account for 98% of passenger revenues globally.

“Restrictions have all but eliminated airline and airport revenue, but not costs, which are substantial and go far beyond solely wages,” the letter said.

“It remains unclear what the duration of the economic impact will be on the UK’s airlines and airports, who face a pressing challenge to survive.”

'Entering the danger zone'
The MPs’ call was welcomed by the aviation industry itself. Tim Alderslade, chief executive of Airlines UK, and Karen Dee, boss of the Airport Operators Association, issued a joint statement backing the initiative.

“We’ve put countless cross-industry ideas on the table to help aviation through this, and the chancellor said in his letter this week he was open to discussing them, yet no discussion has yet taken place,” they said.

“We are now entering the danger zone, and we urge government to change tack and start to engage on a sector-wide basis before it’s too late.”

The MPs said aviation supported some 1.6 million UK jobs and the sector would be essential to support the recovery of the wider UK economy once the crisis had passed.

They called on the chancellor to provide cash support where necessary, as well as taking measures to safeguard jobs and ease regulatory and tax burdens.

On Tuesday last week, Mr Sunak said the state would only enter into negotiations with individual airlines once they had "exhausted other options".

The government says its emergency business measures, including a Bank of England scheme for firms to raise capital and employee wage subsidies, are available for airlines.

However, Transport Secretary Grant Shapps has said he cannot rule out the state taking an ownership stake in UK airlines that have been battered by the impacts of the coronavirus outbreak.