The biggest threat to airlines in the COVID-19 crisis is a cash crunch, as revenues dry up. The International Air Transport Association (IATA) CEO, Alexandre de Juniac, warned that more than half of global carriers could “die” as cash reserves dry up, due to the dramatic cut in revenue.
US and UK take different approach
The UK and US governments are currently taking different stances on providing financial support to airlines.
UK Chancellor, Rishi Sunak, said last week that the government would only step in to help airlines as “a last resort” and that decisions would be taken on a “case-by-case” basis, while the US Senate announced a $2 trillion stimulus package for industries across the country, including airlines, officially named the Corona Virus Aid, Relief and Economic Security Act (CARES Act).
US Bailout Passed With a Vote of 96 to Zero
Passed by the Senate with a vote of 96 to zero in favour of the package, the assistance legislation was signed into law on 27th March by President Donald Trump; this gives passenger airlines $25 billion in cash assistance to cover payroll costs and $25 billion in loans, while cargo carriers are eligible for $4 billion in grants and $4 billion in loans. General aviation (GA) will receive $100 million, this amount is also expected to help in maintaining the access of small and rural communities to aviation services.
A joint letter from US airlines urged the U.S Treasury to release the grants and loans quickly “given the urgent and immediate need”.
The US Treasury is working towards a 1st April deadline to issue procedures to airlines to apply for grants.
United and Delta Will Not Involuntarily Furlough
As stated in the government aid package, United and Delta say they will not involuntarily furlough or cut the pay of U.S. workers, between now and 30th September 2020, as outlined in the government aid package.
Delta Air Lines Chief Executive, Ed Bastian, made it clear in a note to employees that the government relief package “is not a cure for the unprecedented challenges we face” .
American Airlines Will Seek $12 Billion
American Airlines has confirmed it will seek $12 billion (£9.7 billion) of financial support from the US government, because of the impact of coronavirus.
“These funds are being distributed to ensure continuation of essential airline service and protect jobs. We intend to apply for these funds and are confident that, along with our relatively high available cash position, they will allow us to fly through even the worst of potential future scenarios.”Staff email from American Airlines CEO Doug Parker and president Robert Isom.
Southwest Sees Aid as “Another option”
Meanwhile Southwest Airlines CEO, Gary Kelly, said the aid gives Dallas-based carrier “another option” to bridge the crisis, in addition to access to loans and other credit lines. Kelly’s comment suggests that the airline is undecided as yet on whether to tap either the grants or loans.
Unsurprisingly aspects of the US deal come with strings attached, including maintaining current staffing levels until 30th Sept 2020; also sustaining air service to all existing US destinations.
UK’s Loganair to Ask For Further Government Support
In the UK Scottish regional carrier Loganair is likely to ask for further government support, to weather the storm of the coronavirus pandemic. Their CEO, Jonathan Hinkles, told the BBC’s Today Programme that while the Department for Transport and Civil Aviation Authority have been providing “superb” operational support, this would not be enough to keep them afloat.
Hinkles acknowledged that the UK Chancellor had made it clear that there would be no industry-wide bailout programme; also that airlines would need to seek solutions from their shareholders and leaders first, but said:
“I do think that like the vast majority of UK airlines we will be going back to take up that invite for further conversation with the Treasury in coming days because we have to.”Loganair CEO Jonathan Hinkles
It’s likely Loganair won’t be alone in having further conversations with the government. It is understood that Virgin Atlantic is expected to ask for a government bailout in the coming days, also it is likely that other UK airlines will be seeking the same state aid.
There is no doubt that a number of airlines will be heavily reliant on government support for survival, the weeks ahead will see an extremely testing time for the industry.