The head of the International Air Transport Association (IATA) said Tuesday (17 March) that airlines around the world may need as much as US$200 billion in government aid to survive the COVID-19 coronavirus pandemic that has virtually shut down international air travel and killed almost 8,000 people.
Showing the limits of working remotely, IATA Director General Alexandre de Juniac spoke to reporters in a conference call marked by technical glitches. In the call, de Juniac said “time is of the essence. Governments cannot take a wait-and-see approach. We have seen how dramatically the situation has deteriorated globally in a very short time. They must act now and decisively.” (To listen to a recording of the media conference call, click here.)
Earlier in the call, IATA Chief Economist Brian Pearce said airlines are facing a “liquidity crisis” and said IATA’s earlier prediction that airlines could lose up to US$113 billion in revenues is worse now as governments around the world ban travel to and from various jurisdictions to try to stem the spread of the virus.
“Many airlines have less than three months of cash to cover their costs,” Pearce added. “The majority of the industry has high levels of debt and there’s a liquidity crisis now. The majority of the airlines are in a fragile place.”
De Juniac followed up by saying governments could do the following the help airlines:
- Direct financial support for carriers to compensate for reduced revenues, and therefore support liquidity due to travel restrictions imposed as a result of COVID-19;
- Loans, loan guarantees and support for the corporate bond market by the government or central bank, either directly to the airline or to commercial banks that may be reluctant to extend credit to airlines in the present situation in the absence of such a guarantee;
- Tax relief: Rebates and/or suspension on all employer imposed payroll taxes paid to date with an ongoing review for the rest of 2020, deferral or reduction in income taxes to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other government-imposed levies.
“Some of you may wonder why, given the broad economic impact of this crisis, governments should focus on airlines. It is because connectivity is crucial,” de Juniac said. “The world will get through this crisis. And when it does it will need a functioning air transport sector. Without financial relief, that is not guaranteed. In normal times, airlines transport about 35 percent of global trade. And every job in air transport supports another 24 in the travel and tourism value chain—nearly 70 million jobs. Prioritising air transport—helping airlines financially survive through these dark times—will position the world for the eventual recovery.”
De Juniac said he was “pretty satisfied” by the early reactions of governments to things like slot relief, which will allow airlines to keep their slots. “One that you will have heard about is a waiver on slots—particularly the 80-20 use-it-or-lose-it rule. Demand patterns have shifted radically. And airlines should not be hindered by the 80-20 rule when adjusting their operations to the reality of today’s market,” de Juniac said. “Governments have responded positively to this. Although we are concerned that the EU is only granting a waiver until June. It is unclear what demand will look like in June. So we are asking for this to be reviewed.”
- Coronavirus: Air India pilots seek urgent financial aid
- Hong Kong airport pax traffic falls 68% in February
- China’s air traffic plunged in February
- CORONAVIRUS: IATA takes subtle swipe at Trump’s travel restrictions
- CORONAVIRUS: AAPA calls for travel bans to be lifted as Trump axes all travel from mainland Europe
- ACI World warns airports will see steep decline in pax traffic and revenues
- IATA: “Extended scenario” for coronavirus could see US$113 billion wiped off airline revenues globally
He also said the recent announcement by the CAPA Centre for Aviation that “most airlines” will be bankrupt by May if governments don’t step in is a risk, but said the industry faces a cash crisis and not a solvency crisis.
Pearce added that airlines are “doing what they can to survive”, but said there will be job losses and “clearly it’s going to be a major impact” on employment in the travel industry.
The two IATA officials also said the recent precipitous fall in oil prices will help airlines since fuel costs are the industry’s second-highest cost, but they added that some airlines had earlier hedged fuel purchases when oil was trading higher, which adds to the liquidity crunch. They also said the industry will definitely see consolidation and that if action is not taken soon “large parts of the industry might not be there” in the weeks and months to come.
For now, airlines are cutting back on capacity and looking to lay off employees. Air New Zealand said it has suspended trading of its shares as it tries to determine the financial impact of drastic cuts in capacity made earlier this week to international and domestic capacity. Virgin Australia said it would suspend all international flying from 30 March to 14 June and cut its domestic capacity in half, in a move that could lead to job losses. Qantas Airways announced plans to cut 90 percent of international capacity and its Singapore-based low-cost airline Jetstar Asia said it would stop flying altogether for three weeks from 23 March to 15 April. Singapore Airlines said on Wednesday it plans to halve its capacity through the end of April.
Manufacturers face losses as some aid announced
Plane makers like Boeing and Airbus are facing their own set of financial woes. Airbus announced Tuesday (17 March) that it was “pausing” production at its plants in France and Spain, two countries that have been hard hit by the COVID-19 pandemic and Boeing said it was in talks with officials in Washington, DC for some form of assistance. This would be in addition to the US$50 billion in aid being sought by US airlines that includes a mix of direct aid and loan guarantees. Airlines for America, which represents carriers including Delta, United, American and Southwest, recommended passenger carriers immediately receive up to US$25 billion in grants to compensate for reduced liquidity and in the medium term US$25 billion in low- or zero-interest loans.
Australia announced on Wednesday (18 March) that its government would refund and waive charges to airlines such as domestic air traffic control fees worth A$715 million (US$430 million), including A$159 million upfront, as it advised citizens against all travel outside the country.
Boeing, in a statement issued Tuesday, said it supports a minimum of US$60 billion in access to public and private liquidity, including loan guarantees, for the aerospace manufacturing industry. “This will be one of the most important ways for airlines, airports, suppliers and manufacturers to bridge to recovery. Funds would support the health of the broader aviation industry, because much of any liquidity support to Boeing will be used for payments to suppliers to maintain the health of the supply chain,” Boeing said. “The long-term outlook for the industry is still strong, but until global passenger traffic resumes to normal levels, these measures are needed to manage the pressure on the aviation sector and the economy as a whole.”
Critics of Boeing, and there are many, say any aid that goes to the company should be conditioned on Boeing CEO Dave Calhoun zeroing out his salary along with the entire Boeing board and all the top executives at the company should see dramatic reductions in their paychecks.
Airbus said it is also seeking government support, according to media reports from Germany where talks were being held by aviation industry representatives and Germany’s economy ministry. The type of any government support, and how widely it would be distributed, was not discussed in detail, but most likely options include efforts to promote liquidity such as state-guaranteed credits. “We are having regular dialogues with our home nation governments which are all non-public in nature which is why we do not comment on them,” an Airbus spokesman said.
ACI World reverses course on slot rules
ACI World, which represents airports globally, has reversed its earlier position on the easing of slot rules and now favours a global temporary suspension instead of the previous market-by-market plan it supported earlier. “Recognising the ripple effects of pursuing disparate approaches across different countries and airports, ACI World urges a harmonised approach through a global temporary suspension of airport slot usage requirements until 30 June 2020,” the association said.
“Passenger demand continues to slump as travel restrictions and bans come into effect and a temporary suspension would protect existing routes and schedules and enable airports and airlines to recover more quickly when the emergency is over,” ACI World Director General Angela Gittens said. “As an industry, we must come together to meet this unprecedented challenge. Many airports around the world, in particular in Asia and now Europe, face problems of liquidity which raises issues of operational and business continuity. Gittens said national authorities have a key role to play to ensure the sustainability of the entire aviation system by granting relief on airport taxes, on passenger-based taxes, and on taxes on air transport in general to incentivise the return of passenger confidence to travel.
“The situation is set to worsen in the coming weeks and, while we support relief measures, these must be considered on a non-discriminatory basis for all affected actors in the aviation industry so that we can move forward through this crisis together,” she said.