Airlines in dire need of govt aid or may not fly again

A rescue package could include loans and loan guarantees, tax waiver and reduced charges, says analyst

by RAHIMI YUNUS / pic by MUHD AMIN NAHARUL

THE airline sector is in dire need of federal assistance as tens of thousands of flights are cancelled, hundreds of planes lay idle on the tarmac and thousands of employees are forced to go on a no-pay leave.

More international carriers are also cancelling their flights as countries shutter their borders to prevent the spread of the coronavirus.

Local carriers Malaysia Airlines Bhd (MAB), AirAsia Group Bhd and Malindo Airways Sdn Bhd are financially battered as air travel grinds to almost a standstill. The carriers’ head had sought the help of the government, but injection needed to keep these carriers flying would be in the billions, capital the government can’t spare.

An aviation consultant said jobs and labour cost support, tax reliefs and loans are critically needed by global airlines, including in Malaysia.

Sobie Aviation analyst and consultant Brendan Sobie said initial assistance should be rolled out fast and other forms of packages could be extended later.

“It is hard to predict how long this crisis will last. What is important is to get some initial help quickly and then it can be followed up with second and third packages,” he told The Malaysian Reserve.

Malaysia unveiled a RM20 billion economic stimulus package last month to mitigate the impact of Covid-19 as the death toll climbed to 14 (as of yesterday) and over 200 new cases were identified.

Malaysia has barred foreigners from entering the country, exacerbating the carriers’ financial fallout.

MAB is already getting billions of ringgit through Khazanah Nasional Bhd.

Sobie said a rescue package could include loans and loan guarantees, tax waiver and reduced charges.

He said job support could be part of the package to help the airlines retain employees and to allow them to come back stronger after the crisis.

But he expects airlines would struggle to pay salaries amid almost zero revenue, and intervention from the government could cover the labour costs and prevent massive retrenchments.

The analyst said the Covid-19 pandemic had also claimed the skull of aviation-related companies such as handling agents, catering companies and airport workers.

The Australian government has handed out a A$715 million (RM1.8 billion) rescue package to the local aviation sector, including refunds of a range of charges, fuel excise waiver, air service charges and regional security fees.

Similarly, a NZ$900 million (RM2.25 billion) financing has been worked out for Air New Zealand Ltd to keep the flag carrier flying. Airlines in the UK and the US are also calling for a multibillion lifeline from the respective government to survive.

Airplane manufacturer Airbus SE said the board has approved a new €15 billion (RM71 billion) credit facility in addition to the existing €3 billion revolving credit facility. The company said it has available liquidity amounts to approximately €30 billion now to face the industry-wide crisis.

MAB CFO Boo Hui Yee said in an email to employees that the company is no different than many other airlines that are now at the risk of going bankrupt.

AirAsia could extend losses to almost RM800 million this year, Nomura Securities Malaysia Sdn Bhd estimated. However, AirAsia is expected to weather the crisis with a net cash balance of RM2.2 billion as of the financial year 2019, based on actual borrowings, without significantly deteriorating its balance sheet.

AirAsia’s long-haul sister company AirAsia X Bhd is said to likely be in dire need of a cash injection to stay afloat.

Moody’s Investors Service Inc said a preliminary assessment showed that large airlines have adequate liquidity to manage through a fairly significant short-term disruption through June, and a continuing but more moderate disruption through the third quarter of 2020 (3Q20).

The credit rating agency said more modest-sized and/or less liquid airlines will be more exposed and there is potential for some airlines to collapse within a short period without additional support from shareholders and/or central governments.

We believe capacity will be cut by 40% to 60% or more for 2Q20, and in some instances, more than 75%.

“On a full-year basis, we expect global industry capacity to fall 25% to 35%, assuming the spread of the virus slows by the end of June, and subsequently, passenger demand returns,” Moody’s said in a report yesterday.

Emirates will suspend all passenger flights for two weeks from March 25, making the Dubai-based company the largest airline to ground its entire fleet.

Singapore Airlines followed by cutting almost all capacity or 96% up to the end of April.

Freight carriers, however, are enjoying a better prospect as demands for medical-related products jump during the pandemic.