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Due to the impact of Covid19, the airline industry is bleeding money as we speak. As a result, governments are imposing restrictions on citizens’ movement and are taking additional precautions as we speak. The travel and service industry is bearing the brunt head on. If this new report by Bloomberg rings true, we could well see many airlines around the world go bankrupt as early as May this year.
Airlines going Bankrupt
Sydney based CAPA Centre for Aviation warned that major airlines around the world could go bankrupt in a couple of months if they don’t secure some sort of government assistance. Here’s what CAPA’s assessment was, as reported by Bloomberg:
Many airlines have probably been driven into technical bankruptcy or substantially breached debt covenants already. Carriers are depleting cash reserves quickly because their planes are grounded and those that aren’t are flying more than half empty.
Airlines for America, which represents carriers including Delta, United,American and Southwest, recommended passenger carriers immediately receive up to $25 billion in grants to compensate for reduced liquidity and in the medium term $25 billion in low- or zero-interest loans.
The Pundit’s Mantra
This promises to unfold in a very tricky manner. On one hand, the average person is hurting. Clearly, for most people, it’s about meeting the next expense or utility bill as they all huddle together as this pandemic unfolds. On the other hand, any government assistance to big business will be seen with a great degree of skepticism by many. They’d also argue that when times are good, airlines do stock buybacks and hardly pass on the benefits to consumers.
Add to that, the fact that this is an election year is only going to lead to the amplification of rhetoric, irrespective of which side of the argument you stand on.
What do you think about this request for assistance? Do you think airlines need government assistance during this time? Let us know in the comments section.
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I have zero tolerance for giving billions of dollars with careless corporations who have used all of their cash they have making for a decade now. They will raise fares, fire thousands if not tens of thousands of employees, and still provide limited service. Airlines have been making billions in profit for a while now. It’s not like they will use any handouts to keep employees – they will simply line the pockets of the executives – like these companies always do. I think handouts need to be the public, to employees, to small businesses, to shop owners, to restaurants… Read more »
Hi ChadMC,
Thanks for your comment. Yes, it seems like public anger is justifiably rising against what’s happening with airline bailout requests. It’s pretty visible in this environment as the average person is sitting at home, while big corporations with access are asking govt. for handouts.
We don’t want a bunch of airlines going bankrupt, which further limits competition after this crisis is over. I think low-interest loans would be appropriate assistance. Perhaps these should be in the form of a convertible debenture to help the government finances recover when the airlines recover. But there should be no cash grant. A lot of the airlines did stock buybacks rather than create reserves that could be used when the next crisis hit–and there will always be a next crisis whether it’s a severe recession, 9/11 emergency, a pandemic or something else. So the government should help the… Read more »
Hi Barry,
Thanks for your comment. Yes, I’m worried about the employees that work for Airlines and Hotels. As they sit and home and forego pay in some cases, top execs at these companies enjoy access to political power. While I hope the solution is good for workers who actually run these hotels and airlines, I won’t be betting on that given the current political scenario.
Just as it was after 9/11, airlines will be granted low intrest loans.
Hi Autofixer,
Yes, based on the latest news, it does seem like that may happen.