'Strings attached': Governments offer financial
lifelines to airlines, at a price
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[March 20, 2020] By
Jamie Freed and David Shepardson
WASHINGTON (Reuters) - Shattered
airlines were left counting the cost of government support as countries
from the United States to New Zealand set out conditions for bailouts
needed to absorb the shock of the coronavirus pandemic.
Conditions include provisions that loans may convert to government
equity stakes, while U.S. airlines cannot increase executive pay or
provide "golden parachutes" for two years. Air New Zealand's <AIR.NZ>
bailout also depends on the company suspending its dividend and paying
interest rates of 7% to 9%.
New Zealand on Friday offered its national carrier a NZ$900 million
($510 million) lifeline, which Finance Minister Grant Robertson said
would help it survive after the government banned all non-resident
arrivals to the country.
"That puts us in a very good position over the next several months," Air
New Zealand chief executive Greg Foran told reporters of the loan, which
it will not draw down immediately. "We would expect the airline industry
will look different at the end of this. Not all airlines are going to
Under the $58 billion U.S. proposal for passenger and cargo carriers,
the U.S. Treasury Department could receive warrants, stock options, or
"We are not bailing out the airlines or other industries – period," U.S.
Senate Appropriations Committee Chairman Richard Shelby said. "Instead,
we are allowing the Treasury Secretary to make or guarantee
collateralized loans to industries whose operations the coronavirus
outbreak has jeopardized."
Norway will back airlines with credit guarantees worth up to 6 billion
Norwegian crowns ($537 million), half of them to Norwegian Air Shuttle
ASA <NWC.OL>. Conditions include raising money from commercial banks and
the equity market.
Finland, which owns a 56% stake in Finnair <FIA1S.HE>, said it would
guarantee a 600 million euro ($645 million) loan for the state carrier.
The firm said it was implementing a funding plan that included drawing
on available credit lines, sale and leasebacks of planes. Its stock
The International Air Transport Association (IATA) has forecast the
industry will need up to $200 billion of state support, piling pressure
on governments facing demands from all quarters and a rapid worsening in
public finances as economies slump.
"Money is very tight in most countries, so governments need to step back
and be hard-nosed about any form of rescue ... but it all must come with
strict conditions or strings, attached," Shukor Yusof, head of aviation
consultancy Endau Analytics, said in an email.
[to top of second column]
A woman wearing a face
mask stands in front of arrival and departure electronic boards
after the Brazilian airline Azul stated that it will cut all of its
international flights out of its main hub due to the coronavirus
outbreak, at Viracopos International Airport, in Campinas, Sao Paulo
State, Brazil, March 16, 2020. REUTERS/Rahel Patrasso/File Photo
Even with financial assistance, airlines around the world are placing thousands
of workers on unpaid leave as they slash passenger capacity, deepening the
shocks to local economies.
British Airways <ICAG.L> pilots will have to take two weeks of unpaid leave in
each of April and May, and a cut to basic pay spread over three months, the
company said on Friday in a joint statement with the British Airline Pilots'
Britain's Heathrow Airport, usually Europe's busiest airport, is cutting costs
by cancelling executive pay, freezing recruitment and reviewing all capital
Air Canada <AC.TO> has more than 5,100 excess cabin crew after cutting its
flying schedule and plans to start notifying them they will be laid off at least
temporarily, its flight attendants union said.
The airline said it had begun talks with unions about temporary lay-offs but did
not have final numbers yet.
On Friday, Cathay Pacific Airways <0293.HK> said it would slash nearly all
passenger capacity as new government curbs make travel more difficult.
Its low-cost carrier, HK Express, will suspend operations from Monday until
April 30, bringing forward plans to put employees on unpaid leave.
To preserve cash, airlines are also cutting executive pay, suspending dividends,
selling planes, and flying cargo on empty passenger jets. This has led to
surging cargo rates due to high demand - the only bright spot in the industry.
American Airlines <AAL.O> said on Thursday it would use some passenger jets to
move cargo between the United States and Europe, its first scheduled cargo-only
flights since 1984 when it retired the last of its 747 freighters.
In the Asia-Pacific, Qantas, Cathay, Korean Air Lines <003490.KS> are also
operating some flights with empty seats but bellies full of cargo.
(Reporting by Jamie Freed in Sydney and David Shepardson in Washington;
additional reporting by Praveen Menon in Wellington, Tracy Rucinski in Chicago,
Sarah Young in London; Editing by Gerry Doyle and Mark Potter)
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