Airlines are fast running out of cash and pleading desperately for government help around the globe to save them from collapse.
In this country Air New Zealand was not a part of the Government's $600 million financial aid package for aviation announced yesterday but Finance Minister Grant Robertson said this morning the country needed a strong national carrier to keep operating.
In a bid to keep pace with plunging demand, Air NZ has slashed its international capacity by up to 85 per cent and is poised in the next day to announce further cuts to its domestic schedules of up to 50 per cent - even more than what it anticipated at the beginning of the week. It will stay on all routes but with reduced frequency. The airline is today also working on plans for special repatriation flights that may be needed to get Kiwis home from overseas.
This morning it extended a trading halt to allow further time to assess the operational and financial impact of the Government's new travel restrictions.
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Robertson, who is the minister in charge of the Government's 52 per cent shareholding in the airline, said he was talking to the company about how it could be supported but was coy on details because of market rules.
Analysts say a bailout could include underwriting a capital injection for the airline which is moving to lay off a third of its 12,500 staff.
The airline needed a $885m taxpayer bailout after nearly collapsing in 2001 but has since paid the Government about $1.4 billion in dividends.
Overnight the group representing nearly all global airlines, the International Air Transport Association, said typical airlines had two months of cash at the start of the year and this was evaporating quickly.
Air New Zealand with $1b in cash and short term deposits at the start of the year is in a better position than many other airlines but Forsyth Barr estimates its fixed overheads at $160m a month. Labour costs - before the looming redundancies - are around $1.3b a year.
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A CAPA Centre for Aviation report says beleaguered low-cost long haul airline Norwegian had cash for just 26 days of operation. Other airlines ranked included Finnair, with 133 days of liquidity, IAG with 132 days and then easyJet with 113. Air France-KLM, Turkish and Lufthansa came in at 81, 66 and 51 days respectively.
IATA says the industry is facing a liquidity crisis.
Alexandre de Juniac, the association's chief executive, said airlines need US$150b ($252b) to $200b. IATA estimate includes indirect support such as loan guarantees and comes after US airlines asked for a $50b bailout on Monday.
Governments have the financial means to avoid an industry "calamity" in three ways, he said
• Direct financial support for carriers to compensate for reduced revenues, and therefore support liquidity due to travel restrictions imposed as a result of Covid-19;
• Loans, loan guarantees and support for the corporate bond market by the government or central bank, either directly to the airline or to commercial banks that may be reluctant to extend credit to airlines in the present situation in the absence of such a guarantee.
• Tax relief: Rebates and/or suspension on all employer imposed payroll taxes paid to date with an ongoing review for the rest of 2020, deferral or reduction in income taxes to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other Government-imposed levies.
"There is no one-size-fits-all solution. So, we will be writing to governments around the world to alert them to the dire situation of the industry and get them moving — in the circumstances of their country," said de Juniac.
Restrictions on travel were removing significant cargo capacity from the system — capacity that is vitally needed to help keep supply chains going, including the delivery of critical medicines and medical equipment.
"Governments to do all that they can to ensure efficient cargo operations. That includes exempting crew — who do not interact with the public — from quarantine, granting temporary traffic rights where needed, keep air cargo excluded from travel restrictions."
The association is also asking for relief from tough passenger rights measures in Europe.
"We are asking governments to recognise this as an extraordinary situation with respect to passenger rights regulations — particularly EU 261. Cancelling flights is the reality of today — often times because of government restrictions. We continue to ask governments to understand that this is totally beyond the control of the airlines, de Juniac said.
He addressed why airlines should be given special treatment.
"Some of you may wonder why, given the broad economic impact of this crisis, governments should focus on airlines. It is because connectivity is crucial. The world will get through this crisis. And when it does it will need a functioning air transport sector. Without financial relief that is not guaranteed."
In normal times, airlines transport about 35 per cent of global trade.
Every job in air transport supports another 24 in the travel and tourism value chain—nearly 70 million jobs.
"Prioritising air transport — helping airlines financially survive through these dark times — will position the world for the eventual recovery."