Without state funds, many airlines would have disappeared for good in recent weeks, or their chances of surviving on their own would soon tend towards zero. So, is the aviation world facing a renaissance of state-controlled airlines, or at least growing state influence on operations, management decisions and strategies? This cannot be excluded and only time will tell.
The trend is disturbing: An increasing number of professionally managed and formerly profitable carriers are lining up at their respective governments asking for financial support: Air
France-KLM, Korean Air, Avianca, American Airlines, the Lufthansa Group of Airlines, LATAM, Singapore Airlines, Southwest Airlines, to name but a few.
No state aid, no future
The funds requested are in billions, not millions. Without these payments, these airlines risk becoming victims of the Covid-19 outbreak, having been forced to ground aircraft, put staff on unpaid leave, and scramble to raise cash to ensure their survival. Singapore Airlines for instance, has secured US$13 billion of funding to prevent it from going bankrupt. So far, it is the single biggest financing package announced by a carrier since travel demand plunged. At the same time, the U.S. government agreed a US$25 billion bailout for U.S. airlines to secure their survival.
In South Korea, state-backed lenders injected US$2.35 billion in aid into Korean Air Lines and peer Asiana Airlines to keep them aloft and to safeguard jobs. South American carrier LATAM, along with some of its subsidiaries, is hoping for similar support from private and state donors after filing for Chapter 11 creditor protection in the USA yesterday (25MAY20).
According to IATA estimates, airlines worldwide have so far received government funding or binding financial commitments amounting to 112 billion euros.
Against this background, critical questions arise such as to what extent, if at all, politicians will get involved in business and operational issues, including managerial decisions, following government cash injections. And whether they would torpedo tough savings programs because impending job losses could lead to union resistance and public opposition as has happened several times in the case of Alitalia.
At least in the EU, as initial rescue programs show, there have so far been only tentative approaches by politicians to exert influence on internal airline matters.
AF to take on a leading role in climate protection
The French Government's interventions in Air France matters are the most extensive, although still relatively modest. In return for the 7 billion-euro bailout, Paris demanded that the national carrier slash domestic flights and pave the way to becoming the world’s most environmentally friendly airline. “As soon as there are sufficient rail options to domestic flights with a duration of less than 2.5h, these short-haul services will have to be drastically reduced and limited to hub transfers,” French Finance Minister, Bruno Le Maire emphasized. Further, he calls on AF to get rid of older aircraft and renew its fleet with fuel efficient Airbus variants to reach a 50% greenhouse gas reduction by the end of 2024.
Berlin protects Lufthansa
In neighboring Germany, the agreement reached yesterday (25MAY20) between the Berlin government and Lufthansa, goes in a similar direction. The 9 billion euro-bailout consists of a loan totaling three billion euros provided by the state-run KfW Development Bank, coupled to a capital increase financed by the Federal Government's Economic Stabilization Fund (WSF) set up for corona aid. As consequence of the accord reached, the state is to take over 20% of LH, which could be increased to 25 % plus one share in case of a hostile takeover attempt, allowing the government to block such advance. In a statement following the accord, Berlin emphasized that Lufthansa had been "operationally healthy and profitable" before the outbreak of the pandemic and had good business prospects for the future.
The political price for the rescue, demanded by the government, resembles the French approach: Lufthansa’s gradual transformation into a green airline based on an ambitious sustainability program that includes the renewal of its fleet in line with ecological preferences. The airline must also significantly increase the efforts to up the burn of environmentally friendly fuels, Berlin demands.
Merkel vs. EU Commission
The entire package is still pending approval by Lufthansa's Executive Board and Supervisory Board. Afterwards, the entire deal must be consented by the EU Commission in order to become effective. However, there are signals from Brussels indicating that the EU competition watchdogs will only approve the rescue package if Lufthansa gives up slots at its Frankfurt and Munich gateways.
In a first reaction, Chancellor Angela Merkel has rejected such claims. Addressing Brussels, she said: "This will be a tough fight.” For the head of government, who always strives for consensual solutions, this almost resembles a verbal declaration of war.
Meanwhile, airport operator Fraport AG and its biggest customer, Lufthansa, confirmed plans to establish a joint venture. The aim is to strengthen the hub function of Rhine-Main Airport, develop
its ground infrastructure further and exploit efficiency potential. This should make FRA more attractive for users, said Fraport CEO Stefan Schulte, without revealing specifics of the
intended project. The deal will be inked in the coming weeks.
Carriers take to the air again
In the meantime, Lufthansa subsidiary, Brussels Airlines, announced the restart of its operations on 15JUN20, serving a total of 59 destinations. In Europe, 45 destinations will be served in 20 different countries, while in Africa flights to 13 out of 17 cities that are part of the carrier’s long-haul network will be offered to passengers and cargo clients, rounded off by transatlantic services between Brussels and New York (JFK).
Even earlier, since the beginning of this week, Air France KLM Martinair Cargo has added Bangkok, Panama City and St Martin to the route network operating out of Paris CDG. Flight frequencies have also been increased on the sectors CDG - New York, Mexico City, Rio de Janeiro, Tokyo, Shanghai, among others. The same applies to AMS - New York, Los Angeles, Houston, Toronto, Buenos Aires, Dubai, Mumbai, Bangkok, Singapore, Kuala Lumpur, Manilla, Osaka, and Tokyo. In total, the carrier currently serves 67 long-haul destinations, with more to come in the weeks and months ahead.
We always welcome your comments to our articles. However, we can only publish them when the sender name is authentic