Most airlines could be bankrupt by May. Governments will have to help

(CNN) — Global aviation is shutting down in response to the coronavirus outbreak and many airlines will need government bailouts within weeks or face bankruptcy.

Airlines across the world are grounding planes, laying off workers and scrambling to preserve cash as measures to contain the outbreak prompt flight bans and wipe out global travel demand.

According to CAPA Centre for Aviation, a consultancy, most airlines in the world will be bankrupt by the end of May.

“Coordinated government and industry action is needed — now — if catastrophe is to be avoided,” the firm said in a report published Monday. “Cash reserves are running down quickly as fleets are grounded, and what flights there are operate much less than half full,” it added.

The scale of the deepening crisis was underscored Monday when Europe’s biggest low-cost carrier, Ryanair, said that it will ground most of its fleet over the next seven to 10 days.

“In those countries where the fleet is not grounded, social distancing restrictions may make flying to all intents and purposes, impractical, if not, impossible,” the airline said, adding that it now expected to reduce seat capacity by 80% for April and May, and could not rule out complete grounding of its fleet of 470 planes.

“The demand for international air travel is essentially non-existent,” Scandinavian Airlines said Sunday.

Lufthansa, which owns national carriers in Germany, Switzerland, Austria and Belgium, said the group’s airlines are in discussions with their respective governments about “receiving active government support should this become necessary.”

Sweeping capacity cuts

Most of the world’s biggest airlines have announced dramatic reductions to schedules and have idled hundreds of planes. Employees have been asked to take voluntary unpaid leave in the face of the worst aviation crisis in history.

American Airlines said Saturday it would reduce its international capacity by three quarters between March 16 and May 6. United Airlines said it will be cutting capacity in half for April and May, while Delta is reducing capacity by 40% in the next few months — the largest cut in the company’s history.

“The speed of the demand fall-off is unlike anything we’ve seen,” Delta CEO Ed Bastian wrote in a memo to employees obtained by CNN.

Labor unions are now pleading for governments to step in. United’s pilots’ union said Sunday there will be a “call to action” this week to ask the US administration to help, while Britain’s pilots’ union said without “significant government support now there may not be a UK aviation industry left.”

And Britain’s biggest labor union on Monday appealed to British Prime Minister Boris Johnson to implement an “urgent comprehensive financial package” to cover worker pay and extend loans to airlines and airports, or “tens of thousands of jobs” would be at risk.

Cash preservation

Governments are also facing calls from airlines for financial assistance.

Heavily indebted budget carrier, Norwegian Air said Friday that it needed urgent help from the government to “strengthen its liquidity.” “We welcome the fact that the government has decided to remove aviation taxes in Norway, but sadly, this is not enough as we’re in a very demanding situation at the moment,” it said in a statement, asking the government to ramp up its response.

The company said last week it was suspending over 4,000 flights and temporarily laying off up to half its workers.

“European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives,” Johan Lundgren, CEO of low-cost carrier EasyJet said in a statement Monday.

The International Air Transport Association said last week that airlines will need “emergency measures to get through the crisis,” urging governments to consider extending lines of credit, reducing infrastructure costs and easing taxes.

IATA CEO Alexandre de Juniac has previously raised the possibility of direct government bailouts for airlines, similar to what took place in the United States after the 9/11 terrorist attacks.

When deciding on which carriers to prioritize, governments will need to consider which airlines play a vital function in the economy, Bernstein analyst Daniel Roeska said Monday. These are more likely to be the legacy carriers than budget airlines, which are focused mostly on leisure travel, he added.

CAPA Centre for Aviation said the nature of the crisis required a global, coordinated response but said it believed that was unlikely to happen.

“It will consist mostly of bailing out selected national airlines. If that is the default position, emerging from the crisis will be like entering a brutal battlefield, littered with casualties,” the firm said.

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