Airlines Ahead of the Long Runway to the Recovery from COVID-19
01.05.2020, 07:24

Airlines Ahead of the Long Runway to the Recovery from COVID-19

As airlines continue to struggle through the virtually non-existent travel associated with the coronavirus pandemic they are looking for as many places as possible to cut down costs to save money. Many airlines have grounded large portions of their fleets, including inefficient jumbo jets that they would be unable to fill or ageing aircraft that burn excessive amounts of fuel.

The world’s biggest aerospace companies outlined survival plans that include thousands of job cuts and raising fresh funds as their airline customers reeled from the coronavirus pandemic and the near-collapse of global passenger air travel.

United Airlines (UAL) has entered into an agreement to receive approximately $5.0 billion from the US Treasury Department through the Payroll Support Program under the CARES Act in the form of a $3.5 billion grant and a $1.5 billion 10-year loan, which will be used to protect the salaries and benefits of employees through Sept. 30, 2020. In connection with this funding UAL will issue warrants to purchase approximately 4.6 million shares of UAL’s common stocks to the federal government. The first instalment of approximately $2.5 billion was received by United on April 21, 2020, and warrants to purchase approximately 2.3 million shares of common stock were issued.

Now, American Airlines and Delta Air Lines are taking drastic steps to retire the planes that are costing them the most money. American is retiring five aircraft types, while Delta is retiring legendary McDonnell-Douglas planes sooner than planned. Boeing on Thursday said it wouldn’t seek federal aid to help it weather the coronavirus pandemic after the aerospace giant secured a whopping $25 billion in a bond offering, the company’s biggest debt sale ever.

In Europe, airlines also hope for state support. France and the Netherlands have already pledged as much as €11 billion ($11.9 billion) to save Air France-KLM. Switzerland and Austria have pledged to help Lufthansa with state-backed loans as the German airline pursues talks with Berlin over a €9 billion rescue package. These governments have determined that they cannot allow these companies to fail.

"We have made it our mission to provide private aviation industry stakeholders with easy access to spend management tools that are critical to financial efficiency and transparency," said Christopher Marich, co-founder and global strategy director of MySky.

Virgin Australia launches US legal action to protect aircraft from being seized. The move comes as administrators tell a creditors meeting in Australia, they hope to sell the airline by the end of June.

Philippine Airlines, Inc., Cebu Air, Inc., the local unit of AirAsia Group Bhd and other members of the nation’s Air Carriers Association face about 7.0 billion Peso Phillipines ($13.83 million) in fixed costs a month, largely due to aircraft rentals, and about 5 billion Peso Phillipines ($9.88 million) to date in refund liabilities. Singapore and South Korea have thrown a lifeline to their carriers, while airlines in Thailand and Malaysia are also seeking government aid. Malaysia Airlines (MAB) is working closely with sole shareholder Khazanah Nasional for financial support while also taking steps to defend its cash position to sustain the business during the coronavirus crisis. Domestic airline capacity in China is beginning to recover with over 30% of its domestic capacity returning in the last two months.

Middle East state carriers Emirates and Etihad Airways believe it could take three years for air travel demand to return to levels seen just before the COVID-19 pandemic broke out, according to the US - UAE business council. Emirates and Etihad, both of the United Arab Emirates, have grounded scheduled passenger flights since March, but have operated some outbound-only services for foreigners leaving the country. Boeing Co chief executive David Calhoun expects a slow recovery in the global aviation industry. He outlined the sad prospects for world aviation, speaking at the annual meeting of shareholders on Monday. He does not expect the return of air travel volumes to the level of 2019 within two to three years, according to the Wall Street Journal. In his opinion, the revenue of global airlines this year is likely to fall by $314 billion. The airlines are "grounding fleets, deferring airplane orders, postponing acceptance of completed orders, and slowing down or stopping payments," he said. Even when the situation will stabilize, he added, "the commercial market will be smaller, and our customers' needs will be different."

Industry analysts project that the aviation industry could see fleet consolidations around the world in the coming years as airlines retire their old planes and strive to cut costs as much as possible. This could prove problematic for new manufacturers like COMAC who will have to convince airlines to trust the dependability of their planes and make massive fleet changes, potentially with less potential for the manufacturers to prove their aeroplanes’ dependability in revenue service. It could also be an issue for Boeing’s 737 program, as airlines may begin moving toward Airbus fleets that passengers may be more willing to fly due to the Boeing 737 MAX’s safety issues.

Retiring old aircraft has benefits besides cutting fuel costs. When airlines retire fleets they have more space to replace them with newer planes that already have counterparts in the airlines’ line-up. This helps airlines to streamline their operations into a select number of aircraft types reducing training and maintenance costs since the airline only needs to train crew and order parts for a small number of aircraft. Worldwide governments start helping the aircraft industry by providing huge funds. This might cover the COVID-19 devastating financial issues, also to purchase and maintain planes. Big airplane manufacturing companies shares may rise corresponding to the orders from airline companies.

  • Name: Hussain Shabbir
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