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Half the globe’s airlines may face technical insolvency in less than 75 days

Half the globe’s airlines may face technical insolvency in less than 75 days

Airlines

Coronavirus disease (COVID-19) pandemic has put the whole world in a freeze point — limiting people and businesses from its usual activity. Roads are empty. Malls and shopping centers are all quiet. Tourist destinations are in unwanted peace. In truth, the world is on a break.

Airline Industry: Global Status

One of the most affected industries is the airline industry. From an average 175,000 and 180,000 total flights per day last March, all planes that are connecting countries to counties have been staying in a pause. According to the International Air Transport Association, airlines globally can lose in passenger revenues of up to $113 billion due to this crisis. 

Of course, to avoid bigger loss, airlines are trying to defer their capital expenditures and cut costs — some of the ways to somehow ease the pain caused by these struggling times. 

In a report published on CNN, “Europe’s top airlines said they would have to shed tens of thousands of jobs as they race to slash costs because of the rapidly deteriorating medium-term outlook for aviation. Ryanair (RYAAY), Lufthansa (DLAKY), British Airways, Scandinavian Airlines (SASDF) and Air France-KLM (AFLYY) could shed as many as 32,000 jobs among them as they shrink their businesses to account for an industry that will take years to recover from the pandemic. More are likely to follow.”

“We are currently facing the greatest challenge of our recent history,” Lufthansa CEO Carsten Spohr said in remarks posted on the German aviation group’s website on Friday. “We are fighting for the future of this company and the future of the roughly 130,000 employees of the Lufthansa Group,” he added.

Insolvency in less than 75 days

Undoubtedly, this pandemic has caused a huge impact to various industries, hence affecting the global economy status. Forbes wrote: “Without financial aid from their governments, half of the world’s approximately 800 airlines could be bankrupt by the end of May because of the unprecedentedly swift and deep drop in air travel demand amid the coronavirus pandemic, a decline that has exceeded the fright-driven falloff that followed the 9/11 terrorist attacks.

Image from REUTERS/Lindsey Wasson

“CAPA’s conclusion that half the globe’s airlines are headed toward technical insolvency in less than 75 days is based off its analysis of the cash flow challenges now faced by 40 large and mid-sized airlines around the world plus projections stemming from that analysis for the rest of the global industry.”

If most of the airline companies follow suit and have decided to do a collective layoff, can you just imagine the overwhelming negative impact this will bring to the rest of the world?

Local Airline Industry: Status

In the country, Philippine Airlines and Cebu Pacific, two of the biggest local airlines are facing existential threat.

In a letter dated March 25, Air Carriers Association of the Philippines (ACAP), which comprises Philippine Airlines, Cebu Pacific, and AirAsia, asked the government to give them access to emergency credit lines. For them, state intervention and relief on current working capital credit lines can help them survive.

Image from PHILSTAR/RUDY SANTOS

“The Philippine carriers are facing existential threat to their survival which is faced by other airlines in the region and in other parts of the world,” ACAP said.

Last April 2, Rappler published a report showing that the first month of “the Luzon-wide lockdown has led to around 30,000 canceled flights and affected 5 million passengers. With no revenue flow for the next weeks or months and faced with enormous fixed costs, airlines sought an emergency credit guarantee scheme, which gives them access to the banking sector’s loans and credit lines. They sought a 6-month and a longer-term facility for the industry’s survival.”

In fact, ACAP cited the Center for Asia Pacific Aviation’s forecast that most airlines will be bankrupt by May due to the pandemic.

Both Cebu Pacific and Philippine Airlines have announced layoffs and salary cuts due to the virus.

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