The respected aviation consultancy CAPA Centre for Aviation has warned in an advisory to its members that most airlines around the world will be bankrupt by May as a result of the near total travel slowdown due to the spread of the COVID-19 coronavirus and because of inaction on the part of governments.
CAPA said Monday (16 March) that “many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants” and that cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full and some are even empty or so-called “ghost flights”.
“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying,” CAPA said. “Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon.”
The group said governments need to work together to develop a response to the virus, which has killed more than 6,500 people. “Each nation is adopting the solution that appears best suited to it, right or wrong, without consideration of its neighbours or trading partners,” CAPA said. “The fear is that, as a collapsed airline system is reconstituted, similar national self-interest will prevail. That’s important because the aviation industry is about much more than airline health. It is crucial to global communications and trade.”
CAPA said the entire airline industry needs to be re-thought for the modern era to catch up with the rest of the world that “has moved on from the Abacus to the Cloud”. “As things stand, the likely tepid response to the airline crisis will equally be fragmented and nationally based. It will consist mostly of bailing out selected national airlines”, CAPA said in the advisory, citing Chinese airlines, which will likely be bailed out by Beijing and US airlines to some extent who are lobbying Washington for a bailout. European carriers and Gulf carriers will also likely receive some form of national support.
“In short, the post-coronavirus environment has all the makings of a geopolitical standoff,” CAPA said, adding “the last thing the world needs post-coronavirus is a nationalistic aero-political confrontation (because) a conflict along nationalistic lines would have colossal implications for the entire aviation supply chain, airframe and aerospace manufacturers, lessors and financiers. It would be greatly reduced in size and would be catastrophic for many satellite activities.”
“Failure to coordinate the future will result in protectionism and much less competition,” CAPA said. “An unstructured and nationalistic outcome will not be survival of the fittest. It will mostly consist of airlines that are the biggest and the best-supported by their governments. The system will reek of nationalism. And it will not serve the needs of the 21st century world.”