Most of the world’s airlines will be insolvent within ten weeks and governments grappling with the impact of the coronavirus pandemic are not acting together to save the aviation industry.
That is the warning from a leading aviation consultancy as it emerged that US airlines are asking for $50 billion of assistance from the American government and the UK’s flag carrier British Airways is grounding 75 per cent of its fleet over the next two months.
Shares in BA’s parent, International Consolidated Airlines Group (IAG), led the collapse in stocks across the sector. The shares closed down 27 per cent at a seven-year low of 255¾p.
The Centre for Aviation, an Australian consultancy, said in an analysis of the Covid-19 crisis: “By the end of May 2020, most airlines in the world will be bankrupt. As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy or are at least substantially in breach of debt covenants.
“Cash reserves are running down quickly as fleets are grounded, and what flights there are operate much less than half full. Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon.
“It is clear that there is little instinct [for governments] to act co-operatively. Each nation is adopting [a] solution . . . without consideration of its neighbours or trading partners.”
The closure of many foreign routes to US airlines, including their most lucrative transatlantic services to Europe and the UK, has led to discussions about $50 billion in financial assistance, potentially in government-backed loans, cash grants or relief from taxes and airport fees.
IAG is the largest operator at Heathrow, Europe’s busiest airport. BA alone accounts for a little over 50 per cent of the slots and last year carried 47.7 million passengers.
The group said that during April and May it would be grounding 75 per cent of its fleet of 570 aircraft, suspending employment contracts and reducing working hours. It said it was also postponing the departure of its chief executive, Willie Walsh, who was due to step down at the end of next week but will remain in post for an undetermined amount of time. He remains contracted to the company until the end of June.
Mr Walsh said of the coronavirus crisis: “We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer.
“We are making significant reductions to our flying schedules. We will continue to monitor demand levels and we have the flexibility to make further cuts if necessary. We are also taking actions to reduce operating expenses.”
Airports have indicated they will start making job cuts, led by Manchester. Britain’s third largest airport has already been hit by the collapse of Flybe, which went under this month.
Virgin Atlantic is cutting 80 per cent of its services, putting staff on two months’ unpaid leave, offering voluntary redundancy and telling others to go on sabbatical. The airline, which is majority owned by Sir Richard Branson, has led the calls for a government bailout, including a plea last weekend from its chairman, Peter Norris. Virgin Atlantic is one of Britain’s most prominent airlines thanks to Sir Richard. In reality it is a bit-part player, with its 5 million passengers a year about half that handled by the collapsed regional flyer Flybe, which it co-owned, and about one tenth of the size of its great rival and nemesis British Airways.