Global airline industry struggle to stay afloat

Strict international travel restrictions have been put in place, people are worried about flying, and thousands of airline workers are at risk of losing their jobs.Most of the major global airlines say they’re in desperate need of financial relief or the industry might be at risk of collapsing.


In this moment of crisis in the midst of the Covid-19 pandemic, the global airline industry is struggling to stay afloat.

 

Strict international travel restrictions have been put in place, people are worried about flying, and thousands of airline workers are at risk of losing their jobs.Most of the major global airlines say they’re in desperate need of financial relief or the industry might be at risk of collapsing.

 

Airlines for America, an industry trade organization that advocates for major US airlines, asked for $50 billion in assistance from the federal government (by taxpayer money) through $25 billion in grants, $25 billion in low-interest loans, and significant tax relief (which includes a $4 billion return for taxes they’ve previously paid).

 

Australia's Virgin Australia announced it had entered voluntary administration, seeking bankruptcy protection after a debt crisis worsened by the coronavirus shutdown pushed it into insolvency. 

 

United Airlines Holdings Inc is reshuffling its management team to help the airline prepare for the near-term uncertainty of travel demand, new Chief Executive Scott Kirby told employees on Wednesday, as restrictions to keep the coronavirus from spreading are lifted.

 

With stay-at-home orders easing across the United States, airlines have pointed to slight improvements in air travel demand that had virtually disappeared in April. Still, the outlook remains uncertain.

 

“Demand could be down 30% or it could be down 70%,” Kirby said.

 

The German government and Lufthansa, which has been hit hard by the coronavirus pandemic, have reached a preliminary deal on a 9 billion euro ($9.8 billion) bailout.The plan includes Germany taking a 20% stake in Lufthansa, which it plans to sell by the end of 2023. Germany will buy the new shares at the nominal value of 2.56 euros apiece for a total of about 300 million euros.

 

The German Finance and Economy Ministries said Lufthansa was an operationally healthy company before the coronavirus outbreak, was profitable and had good prospects for the future but had got into trouble because of the pandemic.

 

Rivals such as Franco-Dutch group Air France-KLM and U.S. carriers American Airlines, United Airlines and Delta Air Lines have also sought state aid.

The latest airline to show signs of distress is LATAM Airlines Group, the Latin America’s largest carrier, that has now filed for U.S. bankruptcy protection on Tuesday, becoming the world’s largest carrier so far to seek an emergency reorganization due to the coronavirus pandemic.


The filing highlights the financial weakness of Latin America’s carriers, following a similar bankruptcy earlier this month by the region’s No. 2 airline, Avianca Holdings AVT_p.CN.

 

But unlike Avianca, which experienced management turmoil and losses, Chile’s LATAM posted profits for the last four consecutive years totaling more than $700 million. LATAM had also approved a dividend payment this year, in contrast to other carriers that have halted payouts.

 

One of the world’s largest airlines, LATAM said it would continue to fly through its bankruptcy restructuring.

 

Latin American governments, many under severe budget constraints themselves, have been reluctant to bail out their key airlines, in contrast to the United States and Europe.

 

Chile’s finance ministry said in as statement LATAM is a “strategic company for Chile” and that the government would “consider” how it could contribute to LATAM’s restructuring, but it did not offer a bailout.

 

In Brazil, LATAM has been negotiating a bailout of up to 2 billion reais ($367.45 million) that has yet to materialize.

 

LATAM’s Brazil unit is not part of the bankruptcy, although the company may file for bankruptcy there as well if the negotiations for aid fall through.

 

The airline’s CEO for Brazil Jerome Cadier told Reuters on Tuesday evening that LATAM would rather not go through a separate bankruptcy filing in Brazil.

 

“The history here shows that the vast majority of companies don’t make it out of bankruptcy restructuring because the process is too complicated,” Cadier said.

 

Delta Air Lines last year paid $1.9 billion for a 20% stake in LATAM, becoming the No. 2 shareholder in the company.

 

In the lead-up to the bankruptcy filing, LATAM laid off 1,800 employees out of more than 40,000 in total.
 


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