While politicians in New Zealand and the United States are outlining the conditions for bailouts to cushion the impact of COVID-19 on the aviation sector, devastated airlines are working out the cost of such government support.
The conditions for bailout are several. For two years, US airlines are not allowed to provide “golden parachutes” or increase the salary of their executives. As for New Zealand, loans can be converted to government equity stakes whereas Air New Zealand’s bailout is also conditional on paying interest rates of 7-9 per cent and suspending dividend.
On Friday (20 March), Air New Zealand has been offered a NZ$900 million ($749.5 million) lifeline by the government. The lifeline will help keep the airline afloat given that the government has now banned all non-resident arrivals to the country, according to New Zealand Finance Minister, Grant Robertson.
Greg Foran, who is Air New Zealand’s Chief Executive, told reporters that it will not use all of the loan immediately: “That puts us in a very good position over the next several months…We would expect the airline industry will look different at the end of this. Not all airlines are going to survive.”
As a condition for government help, the US Treasury Department could obtain stock, stock options, or warrants within the US$58 billion (S$84.2 billion) US proposal for cargo and passenger airlines. This will allow the government to be compensated for risks while also participating in gains.
“We are not bailing out the airlines or other industries – period…Instead, we are allowing the Treasury Secretary to make or guarantee collateralized loans to industries whose operations the coronavirus outbreak has jeopardised,” remarked Richard Shelby, US Senate Appropriations Committee Chairman.
Also, credit guarantees worth up to 6 billion Norwegian crowns (S$780 million) will be the lifeline passed to the airlines by the Norwegian government. Norwegian Air Shuttle ASA will receive half of it, but under the conditions of raising money from the equity market and commercial lenders.
According to the forecast by The International Air Transport Association (IATA), up to US$200 billion (S$ 288.86 billion) of state assistance will be needed by the aviation industry, even as governments are being pressured by demands from various other industries for help amidst the rapidly deteriorating public finances and economies.
Head of aviation consultancy Endau Analytics, Shukor Yusof, stated in an email, “Money is very tight in most countries so governments need to step back and be hard-nosed about any form of rescue, which could come in various forms – cash, equity, loans, bonds etc – but it all must come with strict conditions or strings, attached.”
On Thursday (19 March), former UN ambassador Nikki Haley opposed Boeing’s bid for US$60 billion (S$86.66 billion) in government financial aid for the US aviation manufacturing industry. Mr Haley resigned from Boeing’s board after that.
Thousands of workers will be put on unpaid leave by airlines globally, which will worsen the economic impact, even if financial help is provided for.
After slashing its flying schedule, Air Canada is left with more than 5,100 excess cabin crews, and the airline will notify them of their retrenchment, at least temporarily, according to the statement by flights attendant union. No respond came immediately when Air Canada was asked for a comment regarding this matter.
On Friday (20 March), Cathay Pacific Airways’ budget carrier HK Express stated that all flight operations would be suspended from 23 March to 30 April due to a substantial fall in demand, alongside plans to put workers on unpaid leave.
Some airlines are also planning to get their staff employed with temporary employers. For example, Mr Robertson told reporters that Air New Zealand may send some workers to the government, perhaps in contact tracing and health roles.