With the planes on the ground, the airlines turned to massive state aid and loans to avoid sinking. But since the recovery of air traffic is announced slow, they could fall under the weight of the debt.
In April, at the peak of the coronavirus epidemic, global traffic “bottomed out,” with a 94% drop from last year, according to the International Air Transport Association (IATA), which forecasts a decline of more than half in revenue this year.
The companies asked for help from the State.
Of a total of $ 123 billion in state aid, they will have to repay $ 67 billion and the total amount of the sector’s debt will amount to “almost $ 550 billion, or a massive 28% increase,” according to IATA.
Air France obtained 7,000 million euros (7,900 million dollars) in loans, Lufthansa 9,000 million euros (10,170 million dollars) of which 3,000 million in loans, US companies 50,000 million dollars in aid, of them 25,000 million in loans .
Some have already sunk, such as the two largest airlines in Latin America, LATAM and Avianca, but also Virgin Australia, South African Airways or Thai Airways. “Where governments have been slow to react or have done so with limited funds,” according to IATA CEO Alexandre de Juniac.
“Today we have a liquidity crisis, which is mainly managed with state loans, with subsidies. But this liquidity crisis will quickly turn into a debt crisis and there will probably be companies that will not be able to recover,” predicts Bertrand Mouly-Aigrot, an expert in air transport from the Archery Strategy Consulting cabinet, asked by AFP.
“The next challenge will be preventing airlines from sinking under the weight of the debt,” says De Juniac.
Financial rating agencies S&P Global Ratings and Moody’s have downgraded the financial strength ratings of many companies, such as Lufthansa, IAG, Aeroméxico and the Brazilian GOL, included in the speculative investment category.
The debt of the IAG group (British Airways, Iberia) will probably double by the end of 2020, to 15,000 million euros (17,000 million dollars), while the Portuguese TAP could default on its financial commitments for July, S&P foresees.
Rather, low-cost airline Ryanair entered the crisis with high liquidity and very low debt, the agency notes.
– “Lack of optimism” –
In the United States, Boeing President David Calhoun caused a stir in mid-May, estimating the collapse of a large American company “highly probable.”
The CFRA Research cabinet explains in a note that “it is very confident” that Delta and Southwest Airlines will survive the crisis, but it is less clear with United and especially with American Airlines, considered “high risk” because it has entered the crisis very indebted.
With a very gradual recovery in traffic, revenues will be limited. American and Chinese companies can lean on the domestic market, which will be the first to normalize. But “domestic traffic does not have the same profitability, the same income potential as long-distance traffic,” says Bertrand Mouly-Aigrot.
And airlines heavily dependent on long haul, such as Hong Kong’s Cathay Pacific or Singapore Airlines, or Gulf airlines, are the ones “suffering greatly and will have to wait longer for recovery,” he adds.
Traffic is not expected to return to 2019 levels until 2023, the industry estimates.
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