Airlines may need US$200B in aid: industry group
Governments asked to ‘act urgently’ as bankruptcies loom in aftermath of virus
Global airlines will likely require up to US$200 billion in bailouts to avoid mass bankruptcies as a result of the novel coronavirus pandemic, the head of the industry association said.
Three-quarters of carriers have less than three months of cash to cover fixed costs, Brian Pearce, chief economist of the Montreal-based International Air Transport Association, said Tuesday. Unless governments step in urgently with financial assistance, bankruptcies are inevitable, added IATA head Alexandre de Juniac.
“We are in a very, very tough liquidity crisis, so we ask the governments to act urgently,” de Juniac said on a conference call with reporters.
“We understand that many other economic sectors are heavily touched, but we think that connectivity is crucial in maintaining economic activity. Connectivity is also crucial to ensure that the recovery will be fast and significant.”
Asked about the magnitude of an eventual bailout, de Juniac said: “We should envisage something like US$150 to $200 billion.”
IATA is seeking aid to compensate for lost revenue, including loans, as well as tax relief in the form of a suspension in payroll taxes, de Juniac said.
The group is also asking governments to reduce charges such as landing or navigation fees.
“If this crisis continues at that intensity, it is clear that we will see a restructuring of this industry, and probably a consolidation, with unfortunately some airlines disappearing,” de Juniac said.
U.S. airlines require about US$50 billion in aid, as grants, loans and tax relief, industry group Airlines for America said.
Closer to home, Air Canada and Air Transat have both urged governments in recent days to help the airline industry.
Global passenger traffic will likely drop “significantly further” this year than the 16-per-cent decline previously estimated by IATA, Pearce said.
The progression of the virus has been such that IATA’S worst-case scenario, which projected a global passenger revenue loss of $113 billion this year, is already obsolete, Pearce said.
The group only released the forecast last week.
IATA’S estimate is “undoubtedly too low,” Pearce said.
The virtual closure of all North Atlantic routes, a $20-billion-ayear passenger revenue market, has made matters worse, he said.
“In many cases, demand for the business of airlines has fallen to zero,” Pearce said.
As Canada prepares to close its borders to most non-citizens, Westjet Airlines became the latest Canadian carrier to curtail operations Monday night when it announced the suspension of all transborder and international flights for 30 days as of midnight Sunday.
It also said it would cut domestic capacity by 50 per cent, also for the next 30 days.
The move follows Air Canada’s announcement of a 50-per-cent reduction in capacity during the second quarter.
Many global airlines are operating close to breakeven or at a net loss, IATA said. What’s worse, the vast majority of carriers still have high levels of debt, meaning that much of their costs are fixed.
Bankruptcy “is clearly a risk because airlines are running out of cash,” Pearce said.
“They won’t be able to sustain operations. Even before COVID -19, the industry was in a fairly fragile position.”