Airlines Plead for State Relief After Virus Shreds Travel
(Bloomberg) -- Airlines in the U.S. and Europe cut flights, idled planes and drafted plans to eliminate jobs, while seeking government support to weather the roughest downturn in the industry’s history caused by the coronavirus.
American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co. said they’re discussing potential aid from the government, without providing details.
Germany and France are weighing financial aid to help get Deutsche Lufthansa AG and Air France-KLM through the crisis. The head of Norwegian Air Shuttle ASA acknowledged that the discount carrier is at the brink and pleaded for help. The Italian government is considering pumping 300 million euros ($333 million) into struggling Alitalia SpA and may take over the airline, people familiar with the matter told Bloomberg.
In the U.K., the airline industry will need as much as $9.2 billion in government aid, Peter Norris, chairman of Virgin Atlantic Airways, will say in a letter to Prime Minister Boris Johnson to be sent Monday, Sky News reported.
The economic effects of the viral outbreak have slammed the airline industry as people scrap travel and countries place restrictions on flights from nations with the highest levels of infection. President Donald Trump’s decision to set curbs on European flights capped a tumultuous week and is expected to upend a trans-Atlantic market that’s usually the world’s most lucrative.
On Saturday, Trump added bans on the U.K. and Ireland to the initial list of continental European countries facing temporary restrictions. The existing travel curbs on Europe affect about 7,300 flights to the U.S., or more than 2 million one-way passenger tickets over the one-month period, according to Cirium, which tracks traffic. Adding in the U.K. and Ireland adds about 4,300 more flights to the total.
“It is a crisis of global proportions like no other we have known,” British Airways chief Alex Cruz said in an internal memo on Friday and seen by Bloomberg. It’s worse than the SARS outbreak in the early 2000s, 9/11 in 2001 and the financial meltdown of 2008-2009, he said.
Jobs will be lost as the airline idles planes, cuts back on flights and moves to protect it balance sheet, Cruz said. The airline, owned by IAG SA, has held talks with multiple banks on its urgent financing need, the Financial Times reported.
The virus first swept through Asia, decimating air traffic and leading to a Chinese government decision to take charge of the parent of Hainan Airlines. Now the epicenter of the pandemic has moved to Europe, with countries locking down travel and confirmed cases topping 140,000 across the globe. Measures taken by states could cost the tourism industry 50 million jobs, according to the World Travel & Tourism Council.
In the U.S., where Trump declared a state of emergency on Friday, the situation has quickly turned grim for airlines.
White House officials are discussing temporarily allowing cash-strapped carriers to keep some taxes and fees they collect from passengers, people familiar with the matter told Bloomberg News.
Germany’s Lufthansa is expected to seek a loan from the state-run Kreditanstalt fuer Wiederaufbau bank to weather the fallout, while as a last resort the government could also purchase a stake, according to a person familiar with the plan. The airline is also considering a temporary halt to most of its business and suspending its dividend. In a statement, the carrier acknowledged it’s seeking additional funds and will use aircraft financing to help with the effort. The company, with bases in Germany, Austria, Switzerland and Belgium, owns about 86% of its fleet.
“We have decided to talk to the governments of our home countries not just about reducing the burden on us, but also about active support as soon as that becomes necessary,” Lufthansa Chief Executive Officer Carsten Spohr told staff in a video message on Friday.
Read More: Lufthansa Seeks State Loan With Germany Weighing Buying a Stake
In France, where the state owns 14% of Air France-KLM, a finance ministry spokesman said the government will use all tools available to help companies in which it has a stake, including recapitalization. The government of the Netherlands owns almost 13% of the carrier.
The airline said it’s building up cash reserves and preparing an emergency plan to cut costs. A spokeswoman for Air France-KLM declined to comment on possible government funding.
Jacob Schram, who leads Norwegian Air, said measures presented by the government in Oslo Friday were positive, but that more targeted support will be required, including an injection of liquidity. The carrier plans to park 40% of its long-haul fleet through May while laying off half of the workforce.
‘Secure Our Future’
The crisis facing the industry is growing worse because nations are taking increasingly severe measures to combat the spread of the virus. Italy,. Europe’s most infected country, has implemented a national lockdown and Spain is following suit. Norway on Saturday closed its airports, and ports, following similar moves by Denmark.
France will shut all schools starting Monday, while President Emmanuel Macron has proposed that European Union leaders discuss stricter border controls.
“We need to act quickly and together at the European level,” Macron wrote on Twitter.
Air France-KLM CEO Ben Smith, addressing employees in a video, said the survival of the company -- in which the Dutch state also holds a stake -- is on the line.
“Right now we need to secure our future,” Smith said, asking to defer payments of aeronautical taxes and fees as well as some social charges.
Air France-KLM has drawn down 1.1 billion euros ($1.2 billion) from a revolving credit facility, bringing available liquidity to 5.5 billion euros, a move it said is aimed at preserving financial flexibility. The company will get government help if needed, Finance Minister Bruno Le Maire said in an interview on RMC.
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