Airlines are well versed in preparing for emergency situations, but the COVID-19 worldwide pandemic has blindsided the entire aviation industry; threatening to dissolve even the most cash rich airlines, unless drastic action is taken. How are governments helping?
IATA Estimates Airlines Can Survive for Three Months or Less
The International Air Transport Association (IATA) estimates that airlines have, on average, enough cash and access to credit to sustain themselves for less than three months.
“More than 75% of airlines we looked at actually had less than three months of cash and equivalents to cover those costs.”Chief economist, Brian Pearce
It is therefore no surprise that airlines are seeking government support to carry them through the crisis. IATA director general, Alexandre de Juniac, estimates that airlines will need more than $200 billion in aid to survive the weeks and months ahead.
“If we want to maintain a strong airline sector, able to cope with this difficult crisis but able also to provide the resources that the recovery [will need]… we need government to act quickly.”IATA director general Alexandre de Juniac
Flybe, the UK’s largest regional carrier, has already ceased operations, with COVID-19 giving them the final push.
Some European airlines are already getting help. State controlled Finnair has a provisional agreement with Finland’s government for a state guarantee of up to €600 million, to help navigate what Finnair chief executive, Topi Manner, describes as the ‘biggest crisis’ in the airlines’ history. Almost 56% of the carrier is owned by the government.
The airline says they have already taken steps to implement a funding plan, including a credit facility of €175 million and the sale and lease of unencumbered aircraft.
“With the state guarantee, Finnair aims to further solidify its cash position and business continuity even if the coronavirus situation prevails longer than currently anticipated.”Finnair airline representative
The government of Norway is offering support for their airlines too, with a state loan guarantee of more than $530 million that will be shared as follows:
Norwegian’s CEO, explains the critical importance of this support:
“We have been clear that we need liquidity, and we are grateful that this is what we are now being offered.”Norwegian CEO, Jacob Schram
With passenger traffic reduced by 95%, Lufthansa’s CEO, Carsten Spohr, said “Our business, and I speak with 30 years’ experience, is in an extraordinary situation.” Lufthansa has not yet sought state support but says “We would seek active support from the state when this is necessary” adding that Lufthansa was in discussions with German state development bank KfW.
In badly hit Italy, Alitalia is in the process of being re-nationalised.
Within the UK Peter Norris, chairman of Virgin Group and the majority shareholder in Virgin Atlantic, asked the UK government to provide £7.5 billion emergency state support to try to rescue the UK aviation industry.
Like other airlines easyJet has grounded the majority of their fleet, only operating rescue flights to repatriate customers.
“We fully support and welcome the Government’s commitment to support airlines during these unprecedented times. Our focus is on measures to help with short term liquidity and protect jobs.”easyJet spokesperson
UK airline executives from Virgin Atlantic, British Airways, easyJet and Ryanair met with government ministers last week. The transport secretary, Grant Shapps, said that the government would not allow the collapse of “world-leading, well-run, profitable” airlines.
Further announcements about government support to the aviation industry are expected imminently.