Most airlines face bankruptcy by end of May

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The airline industry is warning that it must shed jobs and obtain state support to survive the coronavirus crisis, as carriers around the globe grounded the majority of their fleets and took steps to conserve cash.

In the past 24 hours, United Airlines of the US, IAG — parent of British Airways, Aer Lingus and Iberia — Air France-KLM, EasyJet, Finnair, Air New Zealand and Aeroflot all unveiled drastic measures to cut costs after several countries, including Germany and Spain, closed their borders.

Willie Walsh, head of IAG, will postpone his retirement to steer the group through the health emergency. Announcing a 75 per cent reduction in capacity over the next two months, Mr Walsh said there was no guarantee that many European airlines would survive.

His comments came as the Centre for Aviation, a respected aviation consultancy, warned that by the end of May most airlines would be bankrupt due to the unprecedented travel restrictions that are being rolled out by governments around the world.

“Many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” Capa said in a report. “By the end of May 2020, most airlines in the world will be bankrupt. Co-ordinated government and industry action is needed — now — if catastrophe is to be avoided.”

Losses of up to $113bn predicted

Iata, the industry trade body, estimated that the industry would lose up to $113 billion in revenue as a result of the crisis. But that was before the widening international lockdown. The three global airline alliances, Oneworld, SkyTeam and Star Alliance — which represent close to 60 carriers accounting for half the world’s capacity — called on governments, airports, lessors and other stakeholders to help the industry.

Mr Walsh said his group had not asked for state aid. He stressed that the group had total liquidity of €9.3 billion and was taking actions to cut costs and preserve cash, such as grounding surplus aircraft, reducing and deferring capital spending and cutting working hours.

Ryanair, Europe’s biggest low-cost carrier, raised the prospect that all of its aircraft could be grounded in the coming months as it joined the ranks of other airlines racing to cut costs and preserve cash in the wake of Europe’s widening border lockdowns. Michael O’Leary, chief executive, said capacity would be reduced by 80 per cent in April and May but “a full grounding of the fleet cannot be ruled out”.

In those countries where the fleet was not grounded, “social distancing restrictions may make flying to all intents and purposes, impractical, if not, impossible”, he said.

Air France-KLM said it would be reducing capacity by 70-90 per cent and had a “sharply deteriorated financial trajectory”. It said it welcomed statements from the French and Dutch governments that they were studying all possible means to support the group. It said a host of emergency measures — ranging from cost savings of up to €200m and plans to cut employee hours — would only offset the capacity reduction by half.

United Airlines in the US and Air New Zealand have told staff that they will begin redundancy processes, as travel restrictions force carriers to slash capacity and ground tens of thousands of aircraft.

Air New Zealand said on Monday that it would reduce international capacity by 85 per cent and cut domestic capacity by almost a third in April and May. The carrier, which employs 8,000 people, said it would consult with trade unions about redundancies.

That followed news from United that it is planning to halve its capacity for April and May, and has warned its nearly 100,000 employees of “painful” cuts to its payroll.

US carriers

United, American Airlines and Delta Air Lines have all announced deep cuts to their international services and have begun talking to the federal government about possible assistance.

EasyJet, Europe’s second biggest low-cost carrier, withdrew its guidance for this year and said it was cutting capacity, although it did not quantify the reduction. Like many carriers it is in discussions with financiers to bolster its liquidity position. It said it had cash balances of £1.6bn and an undrawn $500m revolving credit.

Finnair is cutting 90 per cent of its capacity and its dividend amid what the Finnish flag carrier described as the “biggest crisis in the history of aviation” thanks to the coronavirus outbreak. The Finnish airline warned of a substantial financial loss this year and was working urgently on a funding plan including credit lines, loans, and the sale and leaseback of aircraft. Finland’s government, which owns more than half of the shares “will actively support” Finnair, the airline said.

Aeroflot, the Russian airline, also announced that it was suspending flights to several international destinations.

Airlines for Australia and New Zealand, an industry group representing carriers in both countries, said the airline sector was seeking state support including relief on government charges and possible grants that could be made available from government stimulus packages.

Alison Roberts, chief executive of the industry group, said carriers faced a situation that was much more serious than the global financial crisis in 2008.

S&P underscored the perilous state of the industry on Monday by downgrading its credit rating on Australia’s second-largest carrier, Virgin Australia, to B- from B+. The credit rating agency warned that the operating environment “may be deteriorating at a faster pace than Virgin can implement initiatives to protect cash generation and balance sheet health”.