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The main companies are pending state aid, without which they will not be able to survive
The coronavirus crisis has grounded more than 90% of the global aviation sector. According to Iata (International Air Transport Association) calculations, demand has fallen by 80% and the situation in the sector puts 25 million jobs worldwide at risk. Together, airlines could lose more than $ 300 billion this year. Although the figures are still uncertain, since everything will depend on how and when normality recovers – or the new normality – in a sector that, since the end of January, has seen its stock market value almost halved.
The metaphors fall short when it comes to describing the drama that the airlines are going through because, beyond the dark clouds that glimpse their business in the short and medium term, their own viability is in check. Although it is difficult to make future predictions in the current circumstances, everything seems to indicate that, when the pandemic is behind us, we will travel by plane again. However, what for consumers, tourists, is a simple matter of patience, for airlines it is a matter of vital urgency. The German Lufthansa assured a few days ago that it loses a million euros for each day that passes without recovering activity.
But even even when the planes fly through the skies again, the airlines will have to overcome another great obstacle: how to get to introduce measures that guarantee the safety of the passengers (limit the capacity and increase the distance between them) and, at the same time, win money. Ryanair CEO Michael O’Leary has already warned that the Irish low-cost airline is unwilling to fly if governments mandate that planes leave their center seats empty due to the coronavirus pandemic.
Against this background, there are many airlines (large and small) that have requested or will request public aid to the governments of their respective countries of origin to weather the storm. The measure has sparked some debate in the sector. O’Leary has alerted the European Commission by letter that he will take the airline “bailouts” to court. On the contrary, another aviation magnate, the owner of the Virgin Group, Richard Branson, has been in favor, which is a notable change of opinion on his part, after during the crisis of 2008 he advocated dropping airlines that could not survive on their own. The reason for this shift is none other than the collapse of your business, both in the UK and in Australia.
Public aid
With or without controversy, the inflow of public money into many airlines is already underway. In the European Union, Brussels has had to activate a Temporary Framework for State Aid, which will be the umbrella that will allow countries to bypass the ban on giving state aid to private companies.
In Spain, the Government has approved different relief measures for airlines, such as deferring payment of airport and other air navigation fees. As for Iberia -which, with British Airways and Vueling, is part of the Spanish-British group IAG-, the company would be waiting for the Government to expand the line of guarantees from the Official Credit Institute (ICO) in order to receive a loan from more than US $ 1,400 million. The Spanish airline presented an ERTE last month that affects 14,000 workers. In a similar situation is Vueling, which has 3,800 pilots and cabin crew in an ERTE.
The IAG itself announced last Tuesday losses of US $ 535 million in the first quarter of the year and announced that it will fire 12,000 workers at British Airways (more than a quarter of the workforce). At the moment, the cuts have not reached Iberia and Vueling, although IAG is not optimistic: the company is aware that the second quarter will be even worse than the first, with an almost total collapse of business.
In the rest of European countries the airline situation is just as dramatic. In Germany, Angela Merkel’s government is finalizing more than $ 9 billion in aid to Lufthansa. German media have pointed out the possibility of the State entering the company’s capital, although, for the moment, total nationalization has been ruled out. Lufthansa will also receive aid, albeit to a lesser extent, from the Swiss and Austrian governments, as it owns the local airlines AUA (Austria) and Swiss and Edelweiss (Switzerland).
Belgian Brussels Airlines is also part of the Lufthansa group, which plans to reduce its size by between 25% and 30%, and is in talks with the government for state aid, although the amount has not yet been specified.
The president of the Belgian airline, Étienne Davignon, has ruled out that it can return to being in the hands of the State (at least 100%) and has insisted that Lufthansa has no intention of disposing of the company, since in fact, it participates actively in the recapitalization negotiations.
Nationalizations
In France, the Emmanuel Macron government has promised “massive support” to the strategic sectors most affected by the crisis – including airlines – and has not ruled out undertaking nationalizations when the time comes.
In line with that commitment, the French Executive has given the green light to a loan of more than US $ 7,000 million for the Franco-Dutch airline Air France-KLM, in which Paris and Amsterdam control 14.3% and 14%, respectively. Just over half, some US $ 4 billion, will come from a loan granted by a group of French banks, but with a direct guarantee from the State. The Government itself will provide another loan for the rest, plus more than US $ 3,000 million.
On the other hand, the Dutch Government has announced that it will help KLM with an aid package of up to US $ 4 billion in guarantees and loans, although with associated conditions: salary cuts (starting with that of managers) and that the company stop distribute benefits in the form of premiums and dividends.
The CEO of the Air France-KLM group, Benjamin Smith, warned a few days ago that the return to normal activity after the coronavirus crisis will take “at least two years”, and that for “a long time” he will present an offer reduced flights. KLM employs about 35,000 people in the Netherlands.
In Italy, the European country that first accused the impact of the pandemic, the Giuseppe Conte government announced in mid-March that it will nationalize Alitalia with a plan of up to US $ 500 million. It is planned to reduce its size to include a quarter of the current aircraft.
The airline, in bankruptcy since 2017 -and without benefits since 2002-, is owned 49% by the Emirati Emihad and 51% by the holding company Midco, which is mainly in the hands of the Italian banks Intesa Sanpaolo and Unicredit . Among the novelties, the new Alitalia will have representatives of the workers in its management leadership.
The Scandinavian countries are also seeing their airlines suffer, despite the fact that the coronavirus has had a much smaller impact on their economies. Erna Solberg, Prime Minister of Norway, has announced that her government will seek solutions to guarantee the liquidity of the country’s airlines: Norwegian, SAS and Wideroe. All three airlines have already announced a reduction in their operations. In addition, SAS has advanced that it will lay off 5,000 workers.
The sector faces the greatest challenge in its history. According to Iata, more state aid will be necessary than has already been put on the table. The organization has stressed that “direct financial aid” is essential for maintaining jobs and that when normalcy returns, the global economy will need aviation to “restore connectivity, tourism and supply chains.”
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