Airlines need up to $200 billion to survive Coronavirus, IATA says

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It is estimated that the global airline industry will need government aid and bailout measures totaling between $150 and $200 billion if it’s to survive the current coronavirus crisis, according to IATA officials.

Even then, the pandemic is likely to impact the industry dramatically, with many airlines subject to bankruptcy, job furloughs, others consolidating and entirely new groupings emerging, among other things, IATA CEO Alexandre de Juniac said in a webcast briefing Tuesday, March 17.

The warning came as governments around the world indicated that they’re actively exploring proposals to save airlines using capital injections and cash bailouts to help keep airlines afloat with abysmal public demand. Italy’s plans to re-nationalize Alitalia are some of the most advanced.

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Airbus and Boeing are also in talks with their respective governments about bailouts, with the European company announcing a temporary factory shutdown to comply with tighter sanitation and virus protection protocols.

The IATA organization, which represents on the behalf of almost 300 airlines around the world, said in a March 5 statement that carriers can expect to lose about $113 billion in revenue this year is already outdated and obscure. The official estimate didn’t take into account the border closures and flight bans that have been enforced around the world as the virus has spread, such as the United State’s travel ban on Europe and subsequently the U.K. and Ireland.

At the same time, de Juniac said he was “pretty satisfied” with the response of governments to the industry’s calls for help. He had high remarks for the government intervention in support of national airlines such as those in Singapore, South Korea, and China, and said aid packages for cash bailouts being put together in the U.S., the U.K. and European Union appear positive.

“We are pushing hard,” de Juniac said in the webcast interview. “Governments are listening.”

IATA Economist Brian Pearce said in an official statement that only a couple of airlines (~30) worldwide have reasonably healthy debt and earnings. (Basically a good cash reserve base, and out of any debts or liabilities) Even some of the stronger, larger carriers probably have only enough cash to survive for a matter of months without some sort of cash injection, making bankruptcy a real short-term risk, he said.

Airlines would need a variety of measures, ranging from fully-fledged bailouts through loans, loan guarantees, bond-market support, and tax breaks, De Juniac said. Even once the pandemic and public apprehension about the virus has passed, carriers will remain vulnerable and governments will have to reduce the overall capital burden on the air transport sector, he said.

Some credit rating companies have even started to take action on some European airlines.

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The German flag carrier Lufthansa slumped into the non-investment-category after a one-step downgrade by Moody’s, which is an investment rating system, essentially giving stocks a score based on its overall value and performance in the market. Lufthansa’s bonds due in 2024 fell 10 cents on the euro to 78 cents, according to data compiled by Bloomberg.

Moody’s also cut the rating of Easyjet to two steps above junk and is reviewing British Airways and its parent company, the International Airlines Group (IAG)

Scandinavia’s main airline carrier SAS will get a total of 3 billion kronor ($300 million) in state aid from Sweden and Denmark, in support of Danish Finance Minister Nicolai Wammen described as a first step to managing the airline from becoming financially unstable.

IATA’s estimate of global bailout requirements comes after the Airlines for America trade group said in an official statement on Monday that U.S. carriers will need around $58 billion in aid to help weather the crisis in light of almost nonexistent demand for passenger air travel, which has been more unprecedented than even after the effects of a post 9/11 aviation industry.

Italy included 600 million euros ($658 million) worth of capital funding to flag carrier Alitalia in a proposed coronavirus aid package as part of a plan to re-nationalize the loss-making carrier.

Alitalia had been in bankruptcy protection even before the outbreak had taken full effect on the industry, and had already cost the Italian taxpayers more than 2.1 billion euros. It probably doesn’t help Alitalia that the entire state of Italy is in lockdown and quarantine as well, so the chance for even the slightest in passenger demand both foreign and domestic is probably non-existent at this point.

The European Union, now without the support of Great Britain following Brexit, plans to pave the way for other national efforts, with a draft proposal circulated by Brussels, saying that restrictions on state handouts should be loosened to aid industries that have been impacted the most.

The European Commission said it will “work with Italy” on plans to support airlines.

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Some steps could still involve tense negotiations. The Dutch and French governments have already discussed a recapitalization of the conglomerate group Air France-KLM, but any move must be coordinated so that the two states aren’t diluted in any way (basically planning re-capitalization and takeover accordingly between both France and the Netherlands so that neither state is weakened more than the other)

De Juniac also said that he, unfortunately, expects many airlines to delay or cancel jetliner orders and that the virus may have long-term consequences for how carriers regard their largest aircraft, such as the Airbus A380 and Boeing 747, and also the Airbus A340, which have all been among the first jets to be parked, or retired early during the crisis.

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