BUSINESS
03/17/2020 13:35 EDT | Updated 03/17/2020 14:58 EDT

Coronavirus Will Push World’s Major Airlines Into Bankruptcy: Report

The industry is likely to collapse without immediate aid, a group says.

Pakphipat Charoenrach via Getty Images
In this stock photo, an airplane can be seen through the window of an empty airport terminal lounge. The world’s major airlines will face bankruptcy within a few months if governments don’t step up immediately with aid, industry groups are warning.
  • Many carriers “have probably already been driven into technical bankruptcy”
  • A lack of flights could impede the fight against COVID-19, the industry has warned
  • Ottawa in talks with airlines

MONTREAL ― The world’s major airlines will face bankruptcy within a few months if governments don’t step up immediately with aid, industry groups are warning.

The alarm bell comes as Canada’s airlines joined others around the world this week in severely reducing their flight schedules, and U.S. airlines lobbied in Washington, D.C., for a US$50-billion bailout, in the wake of the coronavirus collapsing international travel.

Without action, “most major airlines in the world” will be bankrupt by the end of May, said a report published Sunday by CAPA-Centre for Aviation, an industry intelligence group. 

Watch: These tourist hotspots look eerily empty in the wake of COVID-19. Story continues below.

 

“Many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” said the report.

The Montreal-based International Air Transport Association (IATA) has also warned that some airlines may become insolvent. It estimated on March 5 that airlines stand to lose US$113 billion in the case of an “extensive spread” of the virus, and global passenger numbers would drop 19 per cent. But the CAPA report suggests things are already much more dire than that.

“Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full,” the report noted.

U.S. airlines ask for cash

With Canada announcing a travel ban on nearly all non-residents from everywhere but the U.S., and encouraging Canadians to return home from abroad, the country’s major carriers this week announced major reductions in operations.

WestJet has suspended flights across international boundaries for 30 days, while Sunwing has suspended regular flights to its tourist destinations until April 9. Both have dedicated planes to bringing Canadians home from abroad. Air Canada announced Monday that it is eliminating roughly half its flight schedule due to a “severe drop in traffic.”

Airlines for America, an industry group representing U.S. carriers, said on Monday the country’s airlines could ask for more than $50 billion in aid ― a far larger sum than the aid package airlines received after the 9/11 attacks in 2001.

As of Tuesday, the Trump administration and Democrats in U.S. Congress were hammering out the details of an $850-billion aid package that reportedly includes money for airlines, as well as other industries impacted by the collapse of global travel. It also includes significant tax cuts for individuals and aid for small businesses.

Transport Minister Marc Garneau said on Tuesday that his government is in talks with airlines, but couldn’t yet offer any specifics.

“We are certainly in close contact with all of our airlines, particularly those that fly internationally but also domestically, as well as Via Rail, one of our Crown corporations,” said at a press conference in Ottawa.

“And we are being made aware of the ... unprecedented effect that the coronavirus is having on their businesses. ... [W]e realize that this important sector of the economy is bearing a very heavy burden at this point in time.”

The IATA on Tuesday warned that the reduction in flights could have a negative impact on the fight against the novel coronavirus. That’s because air cargo is used to move medical supplies quickly.

“Air cargo has been a vital partner in delivering much-needed medicines, medical equipment (including spare parts/repair components), and in keeping global supply chains functioning for the most time-sensitive materials,” it said in a statement.

“Air cargo is also instrumental in transporting food and other products purchased online in support of quarantine and social distancing policies implemented by states … IATA calls on governments to take urgent measures to ensure that air cargo will be available to support the global fight against COVID-19.”

Airline nationalism?

The CAPA report worries that the global response to the airline crisis, and to the economic crisis in general, is too fractured.

“Each nation is adopting the solution that appears best suited to it, right or wrong, without consideration of its neighbours or trading partners,” the report said. “As things stand, the likely tepid response to the airline crisis will equally be fragmented and nationally based. It will consist mostly of bailing out selected national airlines.”

That means the world risks “a nationalistic aeropolitical confrontation” when it comes time to rebuild the industry, the CAPA report said.

“If that is the default position, emerging from the crisis will be like entering a brutal battlefield, littered with casualties,” the report said.

“Intergovernmental coordination will be essential.”

With files from Althia Raj, HuffPost Canada, and additional reporting from The Associated Press and The Canadian Press