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March 17, 2020, 8:47 a.m. EDT

Global airlines face bankruptcy by May if governments don’t intervene, warns aviation consultant

Airlines are flying into one of the bloodiest weeks for the industry, as they battle to survive travel restrictions and country lockdowns in the face of the coronavirus crisis

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By Lina Saigol


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American Airlines announced that it is cutting a third of its international flights amid a major slowdown due to the coronavirus (COVID-19) outbreak.

The escalating coronavirus crisis could bankrupt most of the world’s airlines by the end of May unless they get help from governments and the industry, an aviation consultant has warned.

“Demand is drying up in ways that are completely unprecedented,” Sydney-based consulting firm CAPA Centre for Aviation said in a report on Monday.

“Coordinated government and industry action is needed — now — if catastrophe is to be avoided, CAPA warned. “Otherwise, “emerging from the crisis will be like entering a brutal battlefield, littered with casualties.”

The grim prognosis comes in one of the bloodiest weeks for airlines, which are fast running out of cash as hundreds of thousands of fleets are grounded as they battle to survive travel restrictions and country lockdowns that have engulfed the industry in crisis.

On Monday, British Airways owner IAG, easyJet and Ryanair withdrew earnings guidance as they announced mass groundings of aircraft and thousands of layoffs to cope with the escalating crisis of COVID-19.

EasyJet /zigman2/quotes/202825892/delayed UK:EZJ -3.13% said it would continue to operate rescue flights for short periods “where we can” to repatriate customers, and warned that these actions “will continue on a rolling basis for the foreseeable future and could result in the grounding of the majority of the easyJet fleet.”

Johan Lundgren, easyJet Chief Executive added: “European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over,” added Johan Lundgren, easyJet Chief Executive. Shares in easyJet plunged 20% on Monday.

Budget carrier Ryanair said it expects to reduce its seat capacity by up to 80% for April and May, and a full grounding of the fleet “cannot be ruled out.”

Ryanair /zigman2/quotes/204098489/composite RYAAY -0.59%  boss Michael O’Leary said the airline is taking immediate action to reduce operating expenses, and improve cash flows, including grounding surplus aircraft, deferring all capex and share buybacks, freezing recruitment and discretionary spending, and implementing a series of voluntary leave options. Shares in Ryanair fell 12%.

British Airways owner IAG /zigman2/quotes/208070069/delayed UK:IAG -3.60% said it would postpone the retirement of group Chief Executive Willie Walsh, as it announced that capacity for April and May will be cut by at least 75% compared with the same period in 2019. Shares in IAG slid 27%.

Both IAG and easyJet sought to reassure investors by saying they had strong balance sheets. IAG said it had total liquidity of €9.3 billion, including €7.35 billion in cash, cash equivalents and interest-bearing deposits as of March 12. EasyJet said it had £1.6 billion pounds of cash and an undrawn $500 million revolving credit facility.

Germany’s Tui /zigman2/quotes/206714402/delayed DE:TUI1 -3.63%  said on Sunday that it has cash and available facilities of approximately €1.4bn and year-to-date, but that it had applied for state aid guarantees to support the business until normal operations are resumed.

“In light of this situation, the Executive Board has decided today to withdraw the Financial Year 2020 guidance as communicated on 11 February 2020. Furthermore the Executive Board also refrains from issuing a new guidance for the Financial Year 2020 under the current circumstances,” Tui said.

Nicholas Farhi, transportation expert at global consulting firm OC&C Strategy Consultants, said most countries are anticipating about 12 weeks of travel restrictions, which we are just at the start of in Europe and the US.

“In Europe, we are really only in week 1 or 2, and planned flights (as of March 13th) were already expected to be 15-30% down this week vs prior year,” Farhi said, adding, “Some kind of government support is unavoidable.”

Meanwhile, the chairman of Virgin Atlantic will this week press the U.K. government to provide up to £7.5 billion of emergency state support to rescue the U.K. aviation sector, which is running low on cash, according to a report by Sky News .

Mark Manduca, analyst at Citi, said any aid in the coming weeks from the government to the European airlines will “purely swap equity into debt, come with restrictive covenants, high interest rates or other requirements, could be met by legal challenges from better capitalized airlines in Europe and will likely not result in a windfall for equity investors.”

“Most of all, amid these announcements, in some cases it will be important not to confuse zero equity with bankruptcy,” Manduca said.

In the U.S., United Airlines /zigman2/quotes/205037281/composite UAL -4.06%  announced an approximate 50% cut in capacity for April and May. In a message to employees late on Sunday night, United Chief Executive Oscar Munoz and President Scott Kirby said “Even with those cuts, we’re expecting load factors to drop into the 20-30% range — and that is if things don’t get worse,” the executives said.

On Friday, United, American Airlines /zigman2/quotes/209207041/composite AAL -4.15%  and Delta Air Lines /zigman2/quotes/200327741/composite DAL -2.89% , all said that they are in talks with the government about potential assistance to cope with the slump in air travel demand as the coronavirus crisis accelerates.

CAPA said failure by airlines to coordinate the future will result in protectionism and much less competition. “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.”

Scandinavian airline SAS /zigman2/quotes/209021619/delayed SE:SAS +45.65% said it would halt most of its operation and temporarily lay off up to 10,000 employees, or 90% of its workforce, and apply for government help to survive the fallout from the coronavirus outbreak. Sweden has announced a $31 billion crisis package to help struggling businesses. SAS shares dropped 9.89%.

Last week, Norwegian Air Shuttle /zigman2/quotes/204014691/delayed NO:NAS +0.57% said it had grounded 40% of its long-haul fleet and canceled 25% of short-haul flights until the end of May, and temporarily laid off up to 50% of staff in response to President Donald Trump’s European travel ban and the coronavirus pandemic.

Chief Executive Jacob Schram asked the Norwegian government for urgent help to stay in the air, “in weeks, not months.” Shares in Norwegian dropped 2.7%.

/zigman2/quotes/202825892/delayed
UK : U.K.: London
489.80 p
-15.80 -3.13%
Volume: 1.95M
Sept. 29, 2020 4:35p
P/E Ratio
8.06
Dividend Yield
8.96%
Market Cap
£2.30 billion
Rev. per Employee
N/A
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/zigman2/quotes/204098489/composite
US : U.S.: Nasdaq
$ 80.93
-0.48 -0.59%
Volume: 327,421
Sept. 29, 2020 12:13p
P/E Ratio
79.83
Dividend Yield
N/A
Market Cap
$15.05 billion
Rev. per Employee
$624,883
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/zigman2/quotes/208070069/delayed
UK : U.K.: London
91.00 p
-3.40 -3.60%
Volume: 22.68M
Sept. 29, 2020 4:35p
P/E Ratio
N/A
Dividend Yield
11.74%
Market Cap
£4.69 billion
Rev. per Employee
N/A
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/zigman2/quotes/206714402/delayed
DE : Germany: Frankfurt
3.08
-0.12 -3.63%
Volume: 11,730
Sept. 29, 2020 4:27p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
€282,968
loading...
/zigman2/quotes/205037281/composite
US : U.S.: Nasdaq
$ 34.48
-1.46 -4.06%
Volume: 14.57M
Sept. 29, 2020 12:13p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$10.46 billion
Rev. per Employee
$448,946
loading...
/zigman2/quotes/209207041/composite
US : U.S.: Nasdaq
$ 12.23
-0.53 -4.15%
Volume: 22.91M
Sept. 29, 2020 12:13p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$6.49 billion
Rev. per Employee
$345,547
loading...
/zigman2/quotes/200327741/composite
US : U.S.: NYSE
$ 30.44
-0.91 -2.89%
Volume: 8.17M
Sept. 29, 2020 12:13p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$19.99 billion
Rev. per Employee
$499,337
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/zigman2/quotes/209021619/delayed
SE : Sweden: Stockholm
kr 2.41
+0.76 +45.65%
Volume: 52.53M
Sept. 29, 2020 5:29p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
kr2.34 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204014691/delayed
NO : Norway: Oslo
kr 0.92
+0.0052 +0.57%
Volume: 15.80M
Sept. 29, 2020 4:25p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
kr3.33 billion
Rev. per Employee
kr4.95M
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Lina Saigol is the London-based head of corporate news in the Europe, Middle East and Africa regions for MarketWatch and Barron’s Group.

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