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More than half of global airlines could 'die' without aid, says IATA

March 24, 2020
4 min read
Planes at Oslo Gardermoen International Airport
More than half of global airlines could 'die' without aid, says IATA
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International Air Transport Association (IATA) director general Alexandre de Juniac painted a grim picture of the novel coronavirus pandemic, saying more than half of air carriers globally could "die" without immediate government aid.

"We clearly need massive action very quickly, urgently," he told reporters on Tuesday. De Juniac repeated his push for governments around the world to provide airlines with more than $200 billion in aid to bridge the crisis.

The cash crunch from the crisis is the biggest risk to airlines. Revenues have fallen to near zero for most carriers. But fixed costs, like airplane rents and employee payroll, remain on the books, rapidly depleting liquidity — or cash — reserves. Most airline collapses occur when their cash and access to credit runs out.

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By "die," de Juniac referred to a likely wave of both airline collapses and mergers.

Airlines in Europe, where consolidation is years behind the U.S. and travel restrictions are limiting flows across what are normally some the world's most porous of borders, are the most at risk, said IATA chief economist Brian Pearce on Tuesday.

Norwegian Air is repeatedly at the top of most Wall Street analysts' lists of airlines to watch. The Oslo-based carrier has slashed schedules by more than 85% and laid off the majority of its workforce to try and get through the crisis, which has seen demand for air travel plummet as governments' have closed borders and people are staying home to slow the spread of COVID-19.

However, in a glimmer of hope for the discounter, Norwegian said Tuesday that it had secured an initial cash infusion of 300 million Norwegian kroner ($27 million) from the government.

Related: Airlines face ‘critical’ threat from coronavirus-related cash crunch

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Norwegian is far from alone. The CEO of International Airlines Group (IAG) subsidiary British Airways has talked about the carrier's "survival" in communiqué with staff. And the Lufthansa Group — which includes Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa and Swiss International Air Lines — has grounded more than 90% of its fleet in response to the crisis.

Ryanair, by far the most successful and largest European low-cost carrier, said on Twitter Tuesday that it will suspend "most of our flights" from March 24.

"There is a very large number of airlines, hundreds, that are more or less breaking even or producing losses," said Pearce when asked more about how many carriers are at risk.

Related: Coronavirus crisis raises questions about the survival of already-struggling airlines

Under IATA's latest estimate, global aviation revenues are expected to fall by over $250 billion in 2020. This is more than double the organization's previous estimate of a $113 billion loss.

"This is a tremendous revenue shock," said Peace.

U.S. airlines have asked the government for at least $50 billion in aid to bridge them through the crisis. According to the latest reports on the negotiations, the package could include $25 billion in grants to passenger carriers for employee salaries, plus another $25 billion in loans to cover other fixed costs.

Related: US airlines seek at least $50 billion in aid to combat coronavirus crisis

Any aid deal is expected to include limits on executive salaries, as well as investor returns like dividends and share buybacks.

The talks have not progressed fast enough for at least two airlines. Regional affiliates Compass Airlines and Trans States Airlines will both shut their doors in April citing the unexpectedly rapid drawdown in capacity by their partners, American Airlines and United Airlines respectively. The move, however, may bolster other regional carriers by removing some excess capacity from the industry, reported The Air Current on Monday.

"For the weakest airlines of our industry it will not solve the structural problems... but for the moment we are focused on injecting cash for everyone, and then we will deal with the weakest," de Juniac said about the aid being sought.

IATA aims to bring airlines through the immediate crisis, and then let the market be the sorting hat of sorts during what is expected to be a slow, U-shaped recovery after.

Featured image by NurPhoto via Getty Images