The global airlines have never thought of so unpleasant even in their worst nightmare. Bankruptcy can be seen on the horizon. It is estimated that airlines may have a loss of a quarter of a trillion dollars during this pandemic. Around the globe, the government is talking about aviation company financial support. International Air transport Association said that due to lockdown as travel comes to standstill to fight against COVID-19, many airlines will go bankrupt by the end of May.
Qatar Airways CEO Akbar Al Baker—“In this difficult period, it will be the survival of the fittest”.
Airlines that were bragging about not taking any of the state aid and will tackle the crises independently have put their entire armory down. And now are looking for the state aid. – said on Bloomberg television.
What do you think about which airline is affected the most? Any clue!! COVID-19 is affecting starting from the budget operators to the national flag carriers. Suppliers and manufacturers of the airline’s industry are in a big mess, Boeing co. called for state support for billions of dollars and Airbus SE canceling their dividend and extending credit support.
The Z-score method given by Edward Altman in the 1960s is used to identify which airline is more prone to bankrupt based on the data available. In these calculations, government bailouts and funding sources are not taken into account.
From a Pakistan International Airlines Corp., a spokesman said- debt and losses are too much for the company to handle solely and suggested the government an option to long term bond issue or debt to equity swap. No comments were made on this statement. Air Asia Group Bhd decline this proposal, Kenya airways Plc which is now continuing their local flights have also not stated any comments and PNG Air Ltd. didn’t respond to the comments.
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Insecure Business
The list is concentrated on Asia because of high debt levels. But mind you Europe carriers are also not immune as it is proven after the fall in of Flybe Group Plc (UK regional Airline). A score of 1.8 or less than it indicates that is a possibility of bankruptcy along with its score over 3 is considered a solid foundation according to Altman.
Z-score involves five variables that help to measure leverage, liquidity, profitability, recent performance, and solvency. The success rate of predicting bankruptcy rate is 95% but it has come down to 80% to 90% as said by Altman in the 2018 interview.
Current Scenario of Airlines
Thai Airways
Management of Thai airways has formed a reconstructing plan and it is approved by the Thai cabinet. Furthermore, they have a chance for the future to reposition under legal reforms. The airlines have been suffering from financial crises even before the Corona crises. Thai airlines have sought a bailout loan of $1.7 billion from the government. It is presumed to reorganize because of bankruptcy; it might take the government’s ownership of less than 50% and making it a form of privatization.
In a Press release, the following information is disclosed-
The Thai Airlines reform plan is going to be implemented by reorganizing it under bankruptcy, still, it is not going to dissolve or going to declare bankrupt. The reform plan goes like working effectively step by step under the guidance of law and along with the conducting business operation. Thai is ready to put every possible bit to pull them back in COVID 19 crises.
Virgin Australia
The biggest news up till the day is “Nation’s second largest airline seeks for protection for bankruptcy”.
A statement received by Australian Security Exchange, Virgin Australia has recruited a team of Deloitte administrators which will assist them in recapitalizing and ensure to make their financial position viable post COVID-19 pandemic.
They thought of this move right after the Australian government refused the proposal to sanction a loan of $ 888 million. Virgin Australia is struggling to repay a debt of AU $5 billion. Analyst predicts that if the airline survives then it will discontinue international flights and will carry on only with Australian domestic flights.
Trans State Airlines
Trans Airlines is the regional airline which is Missouri based that goes in United under the United Express brand.
US airline Trans State airlines have decided to cease the operation nine months prior to the plan. This decision was taken after their only customer which is united airlines will no longer require additional capacity from Trans airlines. It is due to COVID-19 due to which there has been a reduction in their schedule which has resulted into risk of bankruptcy.
The news of shut down is duly communicated with the employees through a letter. The letter is delivered by CEO Rich Leach (Parent Trans States holdings). With this move, there are no effects on GoJet airways or compass airlines as these two airlines are also owned by Trans State Holdings.
Malaysia Airlines
Malaysia Airlines has been warned for a travel ban and plunged the demand around the world because of COVID-19 have put all the aviation services at the risk of bankruptcy.
Malaysia Airlines have come up with voluntary unpaid leave programs for the employees. The airlines have come up with the scheme of three months of no-pay leave or for at least 3 months five days of leave without pay for a month.
They have also come up with a 10% pay cut off of all the senior level management including CEO Captain Izham Ismail. It is to lower down the operational costs of airlines. To date, Malaysia Airlines have canceled approximately 2000 flights due to travel restrictions all around the globe.
Qatar Airlines
According to a recent statement given by Qatar Airlines CEO-“There would be nothing to consolidate in the coming future”.
Akbar Al baker comments on the warning that comes straight from the International Air transport Association that worldwide only 30 airlines have a healthy balance sheet and they also have cash through which they can survive for a matter of months.
Qatar airline‘s revenue has dropped by 80% due to this pandemic. They have no plans for further traffic cuts. Although, this carrier is still operating in one-third of their normal schedule whereas some of the flights have terminated like Etihad and Mideast rivals emirates.
Surely! Not a Death Sentence
There are some of the airlines which are not going to collapse in the coming year and there would be no need to sell assets or bailouts.
Ryanair Holdings Plc stated that they have cash and the assets for around 4 billion Euros dated till March 12. Their assets include 300 aircraft which are valued around $10 billion. Further, they decline to comment.
First one to hit the Pandemic
The hardest hit due to COVID-19 in the early days was on aviation services. As soon as the news of the virus was viral, the travel demand all over Asia collapsed. Much earlier the containment was adopted; there was a cut down in flights to China.
President Donald Trump has agreed to sign up for the stimulus bill for the aid of airline industry. This bill includes $58 billion for airlines, $29 billion of loan to airlines, and $29 billion of payroll grant to the staff members of aviation services. But to date, many of the airlines have already collapsed. In the near future, both US and other aboard airlines are either going to collaborate or going to shut down. This statement is given by Alexandre De Juniac, Director General of International Air Transport Association.
According to the estimation of the International Air transport Association, airlines all around the world will lose nearly about $314 billion due to this corona outbreak.
Along with it, the consultancy of Airlines CAPA said that by end of May, many of the airline’s industries are going to be bankrupt if they won’t get support from the government or any of the industry intervention.
[…] COVID-19 lockdown has seen a lot of airlines laying their employees of or looking after how to reduce the manpower in correspondent to fleet size. The news of putting a hold to A380 by big airlines are well known. […]