Europe’s airlines try to ride out COVID-19 turbulence

Europe’s airlines are in trouble as coronavirus lockdown measures continue to slash demand for air travel. According to industry estimates, traffic is down more than 90% in places, while global losses are likely to total more than €300 billion.

Governments insist that airlines are strategic assets – given their contribution to GDP and employment – and bailout packages to help them survive the slump have either already been approved or are on the negotiating table.

The multi-billion euro industry will have to contend with a number of factors, including getting the green light from the EU’s state aid services and dodging calls to increase its environmental efforts in return for business-saving cash.

According to an internal European Commission document seen by EURACTIV, nationalising companies in vital sectors of the economy “might be necessary”, at least temporarily, while additional capital could be injected into other firms and sectors.

The EU executive, however, warns of providing liquidity to bail out failing companies overloaded with ‘bad loans’, which could torpedo some flyers’ chances of survival.

Brussels has already relaxed its state aid guidelines as a result of the crisis but is sending out mixed messages regarding attaching green strings to bailouts, as the climate and transport Commissioners chart slightly different courses.

Frans Timmermans told MEPs this week that the Green Deal should be a guiding principle through the crisis and that countries should feel free to set green conditions, while Adina Vălean maintains that the survival of the firms is the primary concern.

Check out Sam Morgan’s interview with the EU’s transport chief here and keep reading below to discover how governments across Europe intend to help their aviation players. Also sign up free to our weekly Transport Brief for regular updates.

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EUROPE’S WEST

PARIS

Unconditional support. Air France sustains more than 350,000 jobs and its business makes up about 1% of its home nation’s GDP, meaning the government will back it to the hilt through the crisis. Ecological minister Elisabeth Borne said on 17 April, ahead of a vote on granting aid to businesses, that ”nationalisation is one of the possibilities. This can also be done by means of guarantees on loans in the first instance.”

For the time being, lawmakers have adopted an amended budget for 2020 that gives €20 billion to the state’s shareholding agency, which owns a 14.3% stake in Air France-KLM. The Netherlands owns just under 13% of the airline, having doubled its stake last year.

The company, which is losing €25 million a day, is in a complicated situation: only 10% of flights are operated and its 45,000 employees are on part-time hours.

There has been a heated debate in France about the environmental constraints that should be imposed on companies in return for state aid, with influential MEPs Pascal Canfin and Karima Delli both saying that bailouts should be “transformative” rather than an excuse to carry on business as usual.

In the end though, an amendment simply asked that companies respect social and environmental constraints already enshrined in the law, a constraint which is far from sufficient for NGOs.

Airlines registered to operate in France will be able to benefit from an EU-approved support scheme, which will allow the government to defer the collection of certain aeronautical taxes until next year and offer carriers a 24-month-long grace window in which to pay them. (EURACTIV.fr)

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THE HAGUE

Scrapped bonus. The Dutch government is also looking to pump cash into KLM in order to safeguard its national airline, with loans worth billions of euros the most likely option on the table.

At the weekend, the carrier moved to build public support for a bailout by scrapping a proposed bonus for its chief executive, which had drawn widespread criticism. CEO Pieter Elbers insisted that he had asked for it to be scrapped so that his firm could focus on “the continuity of our company and retaining KLM for the Netherlands”.

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BERLIN

Bailout talks ongoing. Flag-carrier Lufthansa has had to ground 700 of its 760 planes – including its super-jumbos – and reduced employee hours by two-thirds. “Our flight schedule is almost like 1955,” CEO Carsten Spohr told reporters in mid-March.

The company is currently in negotiations with Berlin about an aid package, as well as the Austrian, Belgian and Swiss governments, which host three of its subsidiaries. Confirmed details have yet to be released but reports say there is the potential for a single-digit multi-billion euro deal with fresh equity and capital.

Despite suggestions from certain politicians like the Mayor of Frankfurt, a renationalisation of Lufthansa, which has been 100% privately owned since the 1990s, does not appear to be on the table. 

However, according to newspaper Der Spiegel, a possible condition for the bailout could be making the government a silent partner and allowing it to own shares with a fixed interest rate or a dividend but no voting rights.

While Lufthansa is considered one of Germany’s industry giants, air transport made up just 2.5% of the country’s GDP, compared to manufacturing which makes up roughly one-fifth. As of 2018, the tourism industry made up 8.8% of the country’s GDP.  (Sarah Lawton | EURACTIV.de)

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BRUSSELS

Belgian bailouts. Brussels Airlines and Tui Fly have asked the federal government for €290 million and €250 million, respectively. Other companies like Air Belgium, Sabena Aerospace and baggage handlers Aviapartner and Swissport are likely to join the call.

Brussels Airlines reportedly risks bankruptcy without aid and is keeping all its planes on the ground until at least 15 May. The pandemic will also have a long-term impact, as the firm has decided to scrap some routes for at least a year.

Parent company Lufthansa – which is also seeking aid from Berlin – announced in March that the airline’s restructuring would be “intensified”.

Brussels Airlines is currently in talks with the government and a potential renationalisation of the airline is on the table. A high-level group of experts charged with saving major Belgian companies is currently exploring viable ways to save it.

The company is essential to the Belgian economy, as many other companies and sectors are directly dependent on it, in addition to its 3,500 direct workplaces.

Wallonia’s airports will be able to defer costly concession fees, after its operators were given the green light by the Commission, which approved a support scheme on 11 April. (Alexandra Brzozowski | EURACTIV.com)  

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VIENNA

Whatever it takes. Austria’s government will support companies and do “whatever it takes and at whatever cost”, according to finance minister Gernot Blümel. But Vienna has struck a more cautious tone when it comes to flag-carrier Austrian Airlines, which has been a subsidiary of Lufthansa since its privatisation in 2009. That deal raised eyebrows at the European Commission at the time but was eventually given the green light.

Government officials are therefore negotiating with not just Austrian’s executives but also Lufthansa’s. To counterbalance the talks, a team of experts from both the public and private sector has been brought in, according to media reports.

No official numbers about the airline’s financial needs have been published yet but public broadcaster ORF quoted industry experts who estimate that Austrian will need €800 million. A spokesman for the firm said that this number “has to be merely a rough estimate”.

Environmental minister Leonore Gewessler has floated the idea that any bailout will be conditional on Austrian making a bigger effort to cut to emissions, in what could set a precedent for other bailout packages across Europe.

In 2018, the last year for which official numbers are available, the tourism and leisure industry accounted for 15.3% of the Alpine republic’s GDP. (Philipp Grüll | EURACTIV.de)

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SCANDINAVIA AND THE BALTICS

HELSINKI

Strategic location. Finland’s government decided on 19 March to grant a state guarantee of up to €600 million to support Finnair’s financing needs. The arrangement requires the approval of the parliament, but it should be a mere formality.

Currently, the state owns 55.8% of Finnair’s shares. Former governments have recently been quite eager to reduce the stake to below 50%, which the company itself is in favour of.

But the issue is not on the agenda of the current centre-left government, especially given the corona-crisis. Changing the majority ownership would also be ideologically difficult as Finnair is considered a strategic asset.

The impact of air travel on the GNP in Finland is estimated to be around 3% – 4%. Finnair’s connections to Asia, particularly to China are very important to tourism, especially in Lapland. Tourism constitutes around 2.5% of the country’s GNP. Helsinki is also a hub between Asia and Europe, the shortest route to the European Union. (Pekka Vantinnen)

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STOCKHOLM / COPENHAGEN

First in flight. Sweden’s half billion euro support scheme for airlines was given the thumbs up by the EU’s competition services on 11 April, in what was one of the first main aviation-based bailout packages notified by a member state.

The scheme mostly involves loan guarantees and the government estimates that up to 20 companies are eligible, chief among them Scandinavian Airlines (SAS) which is partly owned by the Danish and Swedish governments.

SAS has already been granted €137 million by Denmark, with similar amounts set to be paid by Norway and Sweden.

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RIGA

Bucking the trend. Latvian airline airBaltic, which the government has a majority stake in, operates across the Baltic States and beyond. Unlike other carriers, the airline is looking to accelerate deliveries of new aircraft and is in talks with Airbus about its current order of 50 A320s.

The idea is to be in a solid position when lockdown measures are relaxed and there is appetite for cheap air travel again. airBaltic aims to be the world’s only sole-operator of A220s and hopes the smaller size of the plane will stand it in good stead with operating costs. There are tentative plans for routes to reopen in late May from its Riga hub.

In late March, the Commission approved Latvia’s state aid support scheme, worth some €200 million, to help companies affected by the virus outbreak. It is unclear if the airline will seek to tap into those funds although CEO Martin Gauss recently told reporters that state aid in general might only be a stay of execution for some carriers.

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TALLINN

Polish dispute. Estonia’s partly state-owned airline Nordica applied for €20 million in aid this week although a dispute with Polish airline LOT, which also has a stake, over financing might force the government to buy out those shares in order to boost capital.

Economy minister Taavi Aas told media earlier this week that SAS might cooperate with Nordica but details are still to be hammered out. The government sees Nordica as a strategic asset and is in favour of resuming flights out of Tallinn as soon as possible.

State aid is available to Estonian companies and a reported pot of €300 million is on the table. Shipping company Tallink is on course to get a large portion of that money.

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UK AND IRELAND

LONDON

Last resort. The UK government is still negotiating with the likes of British Airways parent company IAG and Virgin Atlantic, which have been told to exhaust all other avenues of funding before formally going down the state aid route. Environmental conditions are unlikely to feature in any eventual deals.

An emergency loan worth €690 million has already been agreed for low-cost carrier easyJet, which faced public blowback after approving a recent dividend payout to shareholders. The airlines will be hoping to avoid the fate of doomed operator FlyBe, which collapsed at the beginning of the crisis.

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DUBLIN

A not-so-green island. King of the no-frills airlines Ryanair recently defended its dubious title as one of the EU’s top ten biggest emitters. The airline sits in a club made up exclusively of coal power plants, according to data from the EU’s emissions trading scheme.

Ryanair is opposed to the multi-billion euro bailout packages sought by legacy carriers like Air France and Lufthansa, as it has the luxury of relying on lower operating costs and a robust balance sheet to see it through the crisis.

Most airlines are sceptical about how quickly the industry can return to pre-virus levels of demand but outspoken CEO Michael O’Leary believes that a quarantine-induced appetite for travel will boost ticket purchases and even trigger a price war between airlines.

The Irish firm is the most affected in Europe in terms of sheer numbers, according to Eurocontrol data, which shows that Ryanair has more than 300 aircraft out of service.

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EUROPE’S SOUTH

MADRID

Tourism cash-cow. Spain’s government has agreed to defer certain tariffs to alleviate problems for air travel, which is the main entry point for tourists, EURACTIV’s partner EUROEFE reported.

Special measures to ease the burden on companies affected by the virus outbreak – mainly to increase their liquidity – will also apply to the aviation sector, government sources told EFE.

Iberia is the national flag carrier – 100% in private ownership, after decades of being a public company – and a member of the Spanish-British IAG group, which last November announced the acquisition of Air Europa for €1 billion.

Madrid, like London, has not committed to a specific bailout plan if the crisis lasts longer. IAG last month told the National Securities Market Commission that it has a solid liquidity position of more than €7 billion as of 12 March, plus more than €1 billion in credit lines.

According to AENA, a public company in charge of airports across Spain, of the 83.7 million tourists who visited Spain in 2019, 82% came by plane.

The sector accounts for 12.3% of Spain’s GDP, and this year it is facing a “perfect storm” scenario: the estimated loss of income for 2020 is equivalent to almost €100 billion, according to some estimates. 

The crisis will have a serious impact on employment: so far almost 150,000 temporary lay-off plans have been submitted by big and SMEs companies in the tourism sector. (Fernando Heller)

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ROME

Chance to save Alitalia. Rome had already granted Alitalia financial assistance before the crisis struck, which the government insists was to help the airline find a buyer. The European Commission is still investigating that transaction and whether it complies with its state aid rules.

Italy is now using the virus outbreak as an opportunity to take back control of the troubled carrier, which has been run by state-appointed administrators since May 2017. The government is planning to nationalise the loss-making airline and create a new company with a much smaller fleet of 25-30 aircraft, just a quarter of the current one.

The ‘mini-Alitalia’ operation has secured the informal blessing of Margrethe Vestager, as the Commissioner told reporters in early April that she will not oppose a takeover by the state if made at the right market price.

Although the nationalisation plan is not finalised, Italy’s transport minister Paola De Micheli said on 15 April that the government will make a significant investment in Alitalia as it will have a crucial role to revive the economy and tourism.

Around 184 million passengers passed through Italy in 2018. Although Alitalia remained the leading airline for domestic flights, Irish company Ryanair had more international flights to the Belpaese.

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ATHENS

A crucial sector. Greece’s main airline, Aegean Airlines, is reportedly ready to ride out the slump in demand. According to Aegean’s management and recent major stakeholder remarks, the carrier is well funded and can survive more than six months on just 10% of scheduled flights and economy-wide support measures.

The rest of the sector is struggling but consists mainly of small companies offering regional routes. They are likely to request state aid.

Greece relies heavily on tourism, with direct payments totalling 8.6% of GDP, according to the Bank of Greece. The World Travel and Tourism Council estimates that direct and indirect tourism revenues make up 20.6% of GDP, while a greek study says it could be as high as 30.9%. Data suggests that 25% of employment is in the sector.

Tourist numbers have topped 30 million annually in recent years. Most arrive through the five international airports – while 3 million are brought by cruise ship. (Theodore Karaoulanis | EURACTIV.gr)

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LISBON

Wheels in motion. Portuguese flag carrier TAP has submitted a request for state aid, hoping that a deal will be struck “very soon”, boss Miguel Frasquilho said last week. The airline announced on 31 March that it would temporarily lay off 90% of its employees and reduce the normal working period by 20% for those still on the payroll.

TAP is 50% owned by the state, through state holding company Parpública, 45% by the private consortium Atlantic Gateway and 5% by its workers.

The private shareholder says the Atlantic Gatway consortium is “fully available” to collaborate with the government on an agreement but that the company has competitive proposals to finance itself and what it needs is “a state guarantee”.

Prime Minister António Costa said on 14 April that the government intends to maintain a timetable for the construction of Lisbon’s new airport, which takes into account the economic fallout of the virus but doesn’t rule out the nationalisation of TAP. 

The tourism sector accounted for 11.3% of Portugal’s GDP in 2018, according to the most recent data from the National Institute of Statistics. (LUSA – Margarida Pinto)

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VALLETTA

Danger zone. Air Malta, which the government has a majority take in, only turned a profit for the first time in 18 years back in 2018 and there are serious doubts about its ability to survive the crisis. The airline has already had to lay off 108 pilots and is facing losses of €130 million this year.

Analysts are already trying to predict a way out for the carrier, which has struggled in recent years to compete in a crowded market. One option could be for the government to restructure the airline and bring in a competitor like Ryanair, relaunching it as ‘Malta Air’.

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VISEGRAD

PRAGUE

Buyer beware. Czech Prime Minister Andrej Babiš and Finance Minister Alena Schillerová hinted that the government could take a stake in Czech Airlines. However, such a move would be problematic because the flag-carrier has a foreign strategic partner.

The company was bought in 2018 by Smartwings Group, which is partly owned by Chinese investment group CITIC. It holds a 49.9% stake. According to Trade Minister Karel Havlíček, loan guarantees from the state are preferable to full-blown acquisition but he did not exclude the idea outright. A solution is targeted by the end of April.

The tourism sector makes up 3% of Czech GDP. “The functioning of Smartwings/ČSA will have significant impact on tourism and business in the Czech Republic,” said EY expert Petr Kováč in an interview with Lidovky.cz. (Aneta Zachová | EURACTIV.cz)

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WARSAW

No Condor buy-out. Poland’s national flag-carrier, LOT, is completely owned by the Polish Aviation Group – which is controlled by the government. LOT intends to reduce pilot salaries, who may lose 66% of their wage, and cabin crew, who are set to take a 50% pay cut, by 30 April 2023. There are no details about salary cuts for board members.

According to Eurocontrol data, air traffic in Poland has dropped by nearly 90% since the beginning of the virus crisis, which also prompted LOT’s ownership to scrap on 13 April its plans to buy German airline Condor. The buy-out of the charter firm was announced at the end of January this year, and the transaction, estimated at more than €500m, was supposed to be finalised by the end of April.

In Poland, the air transport sector supports 137,000 jobs and gross value added is €4 billion. About 1 percent of Polish GDP is generated by air transport and foreign tourists arriving in Poland by plane.

As part of its aid packages, the government promised so far more than €30m for regional airports, which were obliged to maintain minimum operational readiness. (Mateusz Kucharczyk – EURACTIV.pl)

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BUDAPEST

Salaries cut. WizzAir, Hungary’s only major airline, said on 14 April it will sack 19% of its workforce and put even more employees on leave. Executives took an average pay cut of 22%, while the salaries of pilots, flight attendants and office staff were reduced by an average 14%.

The low-cost carrier took over as Europe’s largest airline amid the coronavirus outbreak in terms of number of seats scheduled per week, Forbes reported on 15 April, thanks in part to orders coming from the Hungarian government to deliver medical supplies from China.

In a short statement issued on Tuesday (21 April), WizzAir, which is listed on the London Stock Exchange, said it had received confirmation it is eligible for UK aid under the Covid Corporate Financing Facility, Ttg reported. (Vlagyiszlav MAKSZIMOV)

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BRATISLAVA

Planning for the future. Slovakia does not have an airline to worry about and its capital city, Bratislava, relies mostly on Vienna’s airport which is just 45 minutes away. Plans are in motion to boost infrastructure though and the government is looking for a strategic partner for the development of Bratislava airport. The hunt is on to find a carrier that would like to base itself in one or more Slovak airports. (Zuzana Gabrižová | EURACTIV.sk)

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THE BALKANS

BUCHAREST

Negotiating for survival. Transport Minister Lucian Bode said last week that the government is in talks with the Commission about state aid for national airline TAROM and low cost carrier Blue Air. The aid is set to total €65 million for each company.

State-owned TAROM is in a difficult situation, because it already received an EU-approved bailout of €36.7 million in February, but the minister said the cash is only being used to pay the leasing costs of planes.

Blue Air, meanwhile, said it would ask the government for a rescue loan at a preferential interest rate, so that it could continue operations and keep jobs.

At the end of March, Bode said 80 to 90% of flights at Romanian airports were cancelled. Romania suspended flights to and from multiple countries in the EU, as well as the UK, US, Switzerland, Turkey and Iran. (Bogdan Neagu)

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BELGRADE

Protected asset. Air Serbia is involved in flying in medical and protective equipment to Belgrade. The costs of some of those flights are being covered by the EU, which has earmarked €7.5 million. A flight from China costs between €400,000 and €500,000, so Brussels is on the hook for 15 flights.

Serbia’s flag-carrier has also been involved in repatriation flights since a national emergency was declared in March. Those flights are free of charge for the passengers and 10,000 citizens have been returned home as of last weekend.

Finance Minister Siniša Mali announced that the government will help some of its state-owned companies, including Air Serbia, while President Aleksandar Vučić said that a controlled opening of airports is on the cards for early May.

Air Serbia was created in 2013 when Gulf carrier Etihad Airways bought a 49% stake in Serbia’s JAT Airways. The Serbian government has so far helped the airline through payment of old debts, and through donations and subsidies. (Julija Simic | EURACTIV.rs)

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ZAGREB

Buyers scared off. Similar to Italy and Alitalia, Croatia’s government had in recent months tried to make its national airline as attractive as possible in order to privatise the carrier in 2020. The majority state-owned flyer had reportedly generated interest from Air Nostrum and Aegean.

But the chaos caused by the virus outbreak forced the government to put its privatisation effort for the loss-making airline on hold until further notice and it is keeping its decision under review.

Croatia is one of the most dependent countries on tourism in Europe, with estimates putting the sector’s contribution to GDP as high as 25%. The government is reportedly in talks with its Czech counterpart over a plan to open up a travel corridor between the two countries that would allow tourists to visit Croatia during the summer months.

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[Edited by Sam Morgan, Sarantis Michalopoulos]

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