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Industry body warns most airlines could go broke by May

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Via Financial Times

The airline industry is warning that it must shed jobs and obtain state support to survive the coronavirus crisis, as a respected aviation consultancy predicted that most of the world’s carriers could go broke by May. 

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 slash 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.

The severe measures came as the Centre for Aviation, a 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. 

“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” Capa said 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.” 

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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. On Friday the head of British Airways said the carrier was facing a fight for survival because of the virus outbreak.

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”. 

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Australia’s Transport Workers Union wrote to Australia’s prime minister, Scott Morrison, on Monday urging the government to subsidise airlines and aviation companies, warning that large-scale lay-offs or business collapses would hamper economic recovery. 

“When the current crisis comes to an end the Australian economy will need a healthy transport industry in place,” said Michael Kaine, TWU national secretary, in a letter to Mr Morrison seen by the Financial Times.

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