After traffic stops, airlines face debt wall

Their planes nailed to the ground, the airlines resorted to massive aid and loans from the states so as not to sink. However, the slow announced recovery in air traffic risks confronting them with the debt wall.

In April, at the peak of the coronavirus epidemic, global traffic “bottomed out”, down 94% from last year, according to the International Air Transport Association (Iata), which forecasts a more than half of revenue fell over the year.

With their cash evaporating at supersonic speed, the companies called on the states to the rescue.

Out of a total of 123 billion dollars in state aid, 67 billion will have to be repaid and the total amount of the sector’s debt will amount to “nearly 550 billion, a massive increase of 28%”, according to the Iata. Air France has thus obtained 7 billion euros in loans, Lufthansa 9 billion including 3 billion in loans, American companies 50 billion in aid, including 25 billion in loans.

Some have already sunk like the two largest airlines in Latin America LATAM and Avianca, Virgin Australia, South African Airways and Thai Airways. “Where governments have been slow to respond or have done so with limited funds,” said Iata director general Alexandre de Juniac.

“Today we have a liquidity crisis, which is mainly managed by state loans, subsidies. But this liquidity crisis will quickly turn into a debt crisis and there are probably companies that will not be able to recover, “predicts Bertrand Mouly-Aigrot, air transport expert at Archery Strategy Consulting, interviewed by AFP. “The next challenge will be to keep airlines from falling under the debt load,” said de Juniac.

The rating agencies S&P Global Ratings and Moody’s have thus downgraded the financial strength ratings of many companies, including Lufthansa, IAG, Aeromexico and the Brazilian GOL classified in the speculative investment category.

The debt of the IAG group (British Airways, Iberia) should double by the end of 2020, to 15 billion euros, while the Portuguese TAP may not meet its financial commitments by July, predicts S&P.

Conversely, low-cost Ryanair entered the crisis with high liquidity and very low debt, the agency notes.

“Not optimistic”

In the United States, Boeing boss David Calhoun threw a cob in the pond in mid-May when he considered “very likely” the collapse of a large American company. CFRA Research explains in a note that they have “great confidence” in the fact that Delta and Southwest Airlines are surviving the crisis, but be less positive for United and especially American Airlines, considered to be “at high risk” because it is entering the already heavily indebted crisis.

With a very gradual recovery in traffic, revenues will be limited. American companies, like the Chinese, can rely on a large domestic market, the first to restart. But “domestic traffic does not have the same profitability, the same revenue potential as long-haul traffic,” observes Bertrand Mouly-Aigrot.

And it is the companies very dependent on the long-haul, like the Hong Kongese Cathay Pacific or Singapore Airlines or the Gulf companies which “suffer enormously and will wait the longest for recovery”, according to him.

The return of traffic to the level of 2019 is not expected before 2023, we agree in the sector.

Tim Clark, the iconic Emirates boss, who has prospered with his Dubai hub between Europe and Asia, also has a bleak vision for the future. “I am not optimistic that some of the carriers represented here today, which have already been significantly bailed out, will survive in the coming months,” he said by videoconference at the Arabian Travel Market fair. to tourism.

With networks now wiped out and a very gradual return of passengers, companies will have to be pragmatic and “resize themselves for a level of activity emerging from the crisis that will be lower and not have any new liquidity problem on the horizon. one or two years, “explains Bertrand Mouly-Aigrot, pointing to a harmful” ratchet effect “:” They are forced to reduce their size to reduce their cost base and therefore reduce their ability to have a large offer “.

As a result, hundreds of planes retired and tens of thousands of workers made redundant.

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