Commentary

Work together to get planes up in the air again

Malaysia Airlines is not the only Asia-Pacific carrier in this predicament.PHOTO: REUTERS

Malaysia Airlines (MAS) has told lessors that it will not be able to make payments for aircraft after next month unless it receives more money from state-run sovereign fund Khazanah.

According to Reuters, MAS is burning US$84 million (S$114 million) in cash every month, but had only US$88 million of liquidity at end-August, plus an additional US$139 million available from Khazanah, its sole shareholder.

Now, Khazanah has warned leasing companies that it will stop funding the airline group, while its group chief executive Izham Ismail has warned that it would have "no choice but to shut it down" if lessors decide against backing the restructuring plan.

MAS is not the only Asia-Pacific carrier in this predicament.

Singapore Airlines, which is operating at less than 10 per cent capacity now, is burning cash to the tune of almost $300 million every month. Fortunately, the group has managed to raise $11 billion via a rights issue and secured loans.

It has also tied up additional credit lines, and can raise an additional $6.2 billion in mandatory convertible bonds before next June. This is the largest amount of funds raised by any Asian carrier group.

Given that international borders remain closed, it will have to judiciously manage its cash.

In Hong Kong, 73-year-old Swire Group-controlled Cathay Pacific, faced with a 90 per cent collapse in passenger numbers, has parked more than 40 per cent of its planes and is deferring deliveries of larger planes as it mulls over switching to a fleet of smaller aircraft with fewer business-class seats.

Thai Airways, which is 48 per cent owned by the Thai government, is in bankruptcy proceedings after defaulting

85 billion baht (S$3.7 billion) and facing 333 billion baht in liabilities.

Across the Asia-Pacific, a similar dismal story prevails. Regional airlines are all struggling to survive amid a once-in-a-century pandemic that has brought international air travel to a near standstill.

Asia-Pacific's international traffic is down 96 per cent year on year. Capacity has dived 91 per cent and international load factor is barely 35 per cent. Most carriers are operating at 10 per cent capacity on international routes.

Much ink has been spilt chronicling their losses and struggles.

While some airlines have government backing, this is still precious taxpayers' funds which can be redeployed elsewhere to save jobs and support livelihoods.

The International Air Transport Association (Iata), citing poor virus containment around the world, depressed business travel and lack of consumer confidence, does not expect air travel to return to pre-Covid-19 levels any time before 2024. In the meantime, it projects global airlines will collectively lose some US$84.3 billion this year, and another US$15.8 billion next year.

Asia-Pacific carriers are staring at a loss of US$29 billion this year.

Iata has just warned that the global airline industry will collectively burn through US$77 billion in cash during the second half of this year (almost US$13 billion per month), and almost US$6 billion per month next year.

The only bright spots have been countries with huge domestic travel markets, like China, where the return to some semblance of normalcy has seen a surge in inter-city air travel.

The country's domestic passenger traffic is down only 19 per cent year on year, while capacity on domestic routes is down just 6 per cent, thanks largely to the government's ability to roll out risk management procedures and bring the pandemic under control.

Some level of domestic air travel has also started taking off in Japan, Australia, New Zealand and Vietnam, while South Korea's carriers - traditionally dependent on a high proportion of cargo business - seem to be marginally profitable.

But as Mr Subhas Menon, director-general of the Association of Asia-Pacific Airlines (AAPA) points out, hopes that international air travel will gradually return in the second half of this year have proved to be premature.

"Whilst there have been discussions about air corridors, travel bubbles and green lanes, these have so far failed to take off due to their impracticality and inability to scale up to meet the reasonable expectations of travellers," he noted. "Progress is being made on testing, contact tracing, wearing of masks and social distancing, measures which are also applied in the context of international air travel. Unfortunately, their adoption is neither consistent nor coordinated amongst states."

While the crisis has left most of the region's carriers hanging by a figurative financial thread, forcing them to shed pilots, cabin crew and other staff, the impact is also being felt on the broader economies across this region of some 4.4 billion people.

This is because every one job in aviation generates 25 others in the wider economy, be it tourism, travel, retail or trade.

Geographically vast Asia-Pacific depends on international air travel to support everything, from trade and supply chains to tourism and basic connectivity.

Given that this diverse region is separated by oceans, seas, mountains and other natural barriers, air travel has been critical in keeping it connected, within itself and to the rest of the world.

But the pandemic has shuttered borders and suffocated travel.

"This crisis is not of aviation's making," said AAPA's Mr Menon. "Neither is it the only sector affected. Yet, more than six months into the pandemic, most international flights remain grounded by border closures even as lockdowns are gradually eased. The economic consequences of shutdowns are widespread, with job losses within and outside the industry."

But it does not need to be this way.

Singapore, for one, has started unilaterally opening up its borders to selected, deemed low-risk countries such as Australia, New Zealand, Brunei and Vietnam.

But such measures have to be broad and bilateral to really take off. For that to happen, governments need to talk to each other and devise an acceptable Asia-Pacific-wide risk assessment protocol and testing regime to support borders reopening.

They should perhaps take a leaf out of the book of the European Centre for Disease Prevention and Control, which has collated a strategic database pertaining to the pandemic in all member countries and provided risk assessment guidance for airlines and travellers in the euro zone.

Other public health organisations such as the World Health Organisation and the Centres for Disease Control and Prevention in the US maintain and use similar databases and protocols.

No one wants to travel to another country to be quarantined for 14 days. That said, evidence-based and scientifically supported testing regimes are the only way to gradually reopen borders across the Asia-Pacific.

For example, protocols can enable countries with similar risk levels to allow air travel between themselves, subject to 48 hours pre-departure testing by certified medical authorities at their point of departure. Backing all of this would be accurate contact tracing and appropriate Covid-19 healthcare infrastructure in each country.

If all the boxes tick off, countries should open their borders - at least bilaterally to begin with. A good example is the travel bubble just announced between Singapore and Hong Kong.

Such a measure has been endorsed by Iata.

The global airline body has called for the development and deployment of rapid, accurate, affordable, easy-to-operate, scalable and systematic Covid-19 testing for all passengers before departure as an alternative to quarantine measures, in order to re-establish global air connectivity.

Iata said it would work through the International Civil Aviation Organisation and with health authorities to implement this solution quickly.

Asia-Pacific countries need to move beyond statements of good faith and get their act together. Every day, every week and every month of shuttered borders and grounded planes further strain their economies and stress their people.

International isolation is not a sustainable policy for any state.