US airlines seek US$50bil coronavirus bailout to avoid collapse


  • Aviation
  • Tuesday, 17 Mar 2020

Boeing Co is also seeking short-term assistance, for itself, as well as plane suppliers and for the entire aviation sector, a person briefed on the matter said

WASHINGTON: Major U.S. airlines sought a government bailout of more than US$50 billion as the White House is urgently drafting a financial assistance package in the wake of the steep falloff in U.S. travel demand sparked by the coronavirus pandemic.

A trade association warned that without action airlines could run out of money by year-end - and even sooner if credit card companies started withholding payments. Without action soon, airlines and others in the sector could furlough tens of thousands of workers.

Airlines for America, the trade group representing American Airlines , United Airlines Inc , Delta Air Lines Inc , Southwest Airlines Co and others, said the industry needs $25 billion in grants, $25 billion in loans and significant tax relief to survive. They also seek tax relief that could be worth tens of billions of dollars through the end of at least 2021.

They also seek a package of $8 billion, equally divided in grants and loans for cargo carriers. Airports are seeking at least $10 billion in emergency government assistance, sources toldReuters.

Boeing Co is also seeking short-term assistance, for itself, as well as plane suppliers and for the entire aviation sector, a person briefed on the matter said, saying the company is confident Americans will want to travel again and is in talks with the White House and U.S. lawmakers. It is not clear how much Boeing is seeking. Boeing declined to comment.

"We have to back the airlines - it's not their fault," U.S. President Donald Trump said, saying he has told the airlines he will assist them but did not endorse a specific figure. "We're going to be backstopping the airlines. We’re going to be helping them very much."

The pain was felt around the globe, with European carriers making unprecedented cuts to flights, costs and staffing while stepping up calls for emergency aid. South America's largest carrier, LATAM Airlines Group, canceled 90% of its international flights as demand collapsed.

"This is a today problem, not a tomorrow problem. It requires urgent action," said Nicholas Calio, president of the airline group. The airlines' proposal would see them get funds within 15 days of approval.

U.S. carriers have slashed flights and last week met with the White House to sound the alarm for urgent action. The National Economic Council and U.S. Treasury are drafting a proposed assistance package and officials have been in early talks with lawmakers, officials toldReuters.

Delta is in advanced talks with banks to borrow about $4 billion and an announcement could come as early as Tuesday, a person briefed on the matter said. Bloomberg reported the talks earlier.

Separately, Amtrak and U.S. airports are also in talks about receiving urgent government assistance. Amtrak and its state rail partners are seeking $1 billion as it slashes trains and warned it could see losses of at least hundreds of millions of dollars this year.

The companies said the grants would compensate them for reduced liquidity - net of financing - for all of 2020 attributable to the coronavirus outbreak.

Air Line Pilots Association President Joe DePete said Monday "any economic relief package must contain strong labor protections for the airline employees who have—or will—suffer financial harm."

Senator Ed Markey, a Democrat, said any airline bailout "must have some major strings attached – including new rules to prohibit consumer abuses like unfair change and cancellation fees; protections for front-line workers like flight attendants, pilots, and airport workers." He also called for requiring "development of long-term strategies and targets to reduce the carbon footprint of the airline industry."

Two people briefed on the matter said the chief executives of all of Airlines for Americas' members signed off on the request, including United, Atlas Air , Delta, American, Hawaiian Airlines , Southwest and JetBlue Airways Corp .

Southwest said Monday it had secured a new $1 billion line of credit and withdrawing its previous 2020 financial guidance. Southwest said its planes were flying only half full. It will reduce capacity by at least 20% from April 14 through June 5.

United said Sunday in the first two weeks of March it had 1 million fewer passengers and is currently projecting revenue in March will be $1.5 billion lower than last March.

The airlines warned about the impact of a 30-day domestic ban because that would require them to repay consumers for all tickets purchased within seven days if the service cannot be provided even for non-refundable tickets. That could boost liquidity losses by $7 billion to $10 billion and make it harder to obtain credit. Trump said Monday he was not planning any domestic travel freeze.

White House economic adviser Larry Kudlow told Fox Business Network "It's not so much a bailout" for airlines, describing it instead as liquidity and cash flow help.

"We don't see any of the airlines failing. But if they get into a cash crunch, we're going to try to help them. We're consulting with the House and Senate to see what works. And of course the Treasury Department and the Fed have enormous powers on this," Kudlow said.

United is cutting 50% of its flights in April and May, while American said it will cut 75% of international capacity. Delta is cutting 40% of its flights in the next few months.

Airlines asked the administration to rebate the excise taxes carriers paid into the Air Trust Fund this year and to repeal all federal excise taxes on tickets, cargo and fuel through the end of at least 2021

Reuters also reported that elsewhere airlines and airport operators said they are taking steps such as suspending dividends, selling and leasing back airplanes and flying cargo on empty passenger jets as they grapple with a cash crunch and plunging demand caused by the coronavirus outbreak.

New Zealand's Auckland International Airport Ltd said on Tuesday it would scrap its interim dividend on top of cost-cutting measures that include a hiring freeze and a halt to discretionary spending.

In a blow to the airport operator, Air New Zealand Ltd said it would cut capacity to Australia by 80% from March 30 to June 30 after both countries said over the weekend that all travelers would need to self-isolate for 14 days after arrival.

Qantas Airways Ltd said it would stop 90% of its international flights and 60% of its domestic capacity until at least the end of May, leading to the grounding of the equivalent of 150 planes, including most of its widebody fleet.

The Australian carrier last week told analysts it was looking to raise a few hundred million dollars by refinancing some of its aircraft.

Hong Kong's Cathay Pacific Airways Ltd said on Monday it had agreed a $703.8 million deal with lessor BOC Aviation Ltd <2588.HK> to sell and lease back six Boeing Co 777-300ER airplanes to raise much-needed cash.

The carrier, one of the earliest and hardest hit by the outbreak due to its proximity to mainland China, said its full-service airlines, Cathay Pacific and Cathay Dragon, had made an unaudited loss of HK$2 billion ($257.5 million) in the month of February alone.

It will cut up to 90% of its capacity in April, up from an earlier plan of 65% announced alongside its annual results last week.

"If we do not see a relaxation of travel restrictions in the near future, we expect the same arrangement will have to continue into May," Cathay Pacific Group Chief Customer and Commercial Officer Ronald Lam said in a statement.

"Our advance passenger bookings show no clear signs of recovery at this stage, and the gap in bookings compared to 2019 continues to widen," he said.

The only bright spot for the airline is the cargo market, where rates are surging as a result of the loss of capacity in the belly of passenger aircraft as those flights are cut.

Cathay Pacific and Korean Air Lines Co Ltd <003490.KS> are both flying some planes without passengers to transport cargo due to high demand.

Qantas said it would use some domestic passenger aircraft for freight-only flights to replace lost capacity from regular scheduled services and its fleet of freighters would continue to be fully utilized.

Freight Investor Services on Monday reported a surge in prices across all Asia-Pacific routes. "2020 is fast becoming year of the freighter," it told clients.

Singapore Airlines Ltd reported a higher cargo load factor in February than the prior year, but said on the passenger side, market conditions had continued to deteriorate in March.

Carriers in Europe and the Americas are struggling too.

Major U.S. airlines sought a government bailout of more than $50 billion as the White House is urgently drafting a financial assistance package in the wake of the steep falloff in U.S. travel demand sparked by the coronavirus pandemic.

A trade association warned that without action airlines could run out of money by year-end - and even sooner if credit card companies started withholding payments. Without action soon, airlines and others in the sector could furlough tens of thousands of workers.

In Europe, already battered shares in British Airways parent IAG , easyJet and Air France-KLM plunged again on Monday as they scrapped most flights for the coming weeks, joining other major carriers that are all but halting operations in the face of the pandemic.. - Reuters

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