Coronavirus: Airlines need up to $285 billion to survive pandemic, industry body says

Planes of German carrier Lufthansa are parked at the airport in Frankfurt, on March 15, 2020. PHOTO: REUTERS

GENEVA (BLOOMBERG) - The global airline industry needs government aid and bailout measures totalling between US$150 billion and US$200 billion (S$213 billion to S$285 billion) if it's to survive the coronavirus crisis, according to the International Air Transport Association (Iata).

Even then, the pandemic is likely to reshape the industry, with many airlines failing, others consolidating and entirely new groupings emerging, Iata Chief Executive Officer Alexandre de Juniac said in a webcast briefing on Tuesday (March 17).

The warning came as governments around the world indicated that they're actively exploring proposals to save airlines, with Italy's plans to re-nationalize Alitalia among the most advanced. Airbus SE and Boeing Co are also in talks about state support, with the European company announcing a temporary shutdown to comply with tighter hygiene requirements.

Iata, which represents 290 airlines around the world, said a March 5 estimate suggesting carriers will lose US$113 billion in revenue this year is already outdated. It didn't take into account the border closures and flight bans that have been enforced around the world as the virus has spread.

At the same time, De Juniac said he was "pretty satisfied" with the response of governments to the industry's pleas for help. He praised state intervention in support of airlines in Singapore, South Korea and China, and said packages being put together in the United States, Britain and European Union appear positive.

"We are pushing hard," he said on the call. "Governments are listening."

Iata Chief Economist Brian Pearce said only about 30 airlines worldwide have reasonably healthy debt and earnings. And even the stronger carriers probably have only enough cash to survive for a matter of months without some sort of aid, making bankruptcy a real near-term risk, he added.

Airlines require 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 crisis has past, carriers will remain weak and governments will have to reduce the general burden on the sector, he said.

Credit rating companies have started to take action on European airlines. Deutsche Lufthansa AG sank into non-investment-grade territory after a one-step downgrade by Moody's. Its bonds due 2024 fell 10 cents on the euro to 78 cents, according to data compiled by Bloomberg.

Moody's also cut the rating of Easyjet Plc to two steps above junk and is reviewing British Airways and its parent IAG SA.

Scandinavia's main airline SAS AB will get a total of 3 billion kronor (S$433 million) in state guarantees from Sweden and Denmark, in support Danish Finance Minister Nicolai Wammen described as a first step.

The Iata's estimate of global bailout requirements comes after the Airlines for America trade group said on Monday that US carriers will need US$58 billion in aid.

Italy included 600 million euros (S$946.5 million) of funding to Alitalia in a proposed coronavirus stimulus package as part of a plan to re-nationalise the loss-making carrier. Alitalia had been in bankruptcy protection even before the outbreak and had already cost taxpayers more than 2.1 billion euros.

The EU plans to clear the way for national efforts, with a draft proposal circulated by Brussels saying curbs on state handouts should be loosened to aid virus-stricken industries. The European Commission said it will "work with Italy" on plans to support airlines.

Steps could still involve delicate negotiations. The Dutch and French governments have already discussed a recapitalisation of Air France-KLM, but any move must be coordinated so that the two states aren't diluted, a person familiar with the discussions said.

De Juniac said he also expects many airlines to delay or cancel jetliner orders, and that the virus may have long-term consequences for how carriers regard the very biggest aircraft like the Airbus A380 and Boeing 747, which have been among the first jets to be idled in the crisis.

Airbus on Tuesday said it would pause production and assembly at French and Spanish plants for the next four days to put in place health measures, including cleaning and self-distancing. Both the European company and Boeing have said they're in discussions with governments about aid to the aviation industry.

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