The Planes the Coronavirus Won’t Bring Down: National Carriers
WHY YOU SHOULD CARE
State-owned carriers that emerge strong from the crisis could offer critical competition to major private airlines.
By Eromo Egbejule
- As private carriers beg their governments for bailouts, state-owned airlines are receiving loans and equity with ease.
- State-owned beneficiaries include Singapore Airlines, Finnair, Emirates, Thai Airways and Air New Zealand.
- The global aviation industry is expected to lose up to $314 billion in 2020.
The aviation industry is enduring a bumpier ride than ever, with multiple airlines staring at bankruptcies amid the coronavirus pandemic and travel restrictions unprecedented in modern history. But Singapore’s deputy prime minister, Heng Swee Keat, was calm when he spoke of the future of national carrier Singapore Airlines (SIA) in mid-March. “We’ll make sure that SIA is able to come through this in good shape,” Heng said.
Singapore Airlines is frequently rated as among the best in the world by passengers and independent reviewers. But Heng’s comments reflect a broader shift in the fortunes of state-owned carriers at a time the aviation industry is expected to lose up to $314 billion in 2020, according to the International Air Transport Association. For decades, many government-owned national carriers have faced criticism for bureaucratic management styles, low profits or massive losses. They’ve battled reputations for poorer customer service than that of private counterparts.
Now, as those private airlines run from pillar to post seeking bailouts and other financial lifelines, that same link to governments that was a source of pain for national carriers is helping them secure an ensemble of loans, equity and other palliative measures far more easily.
Finland has handed a $649 million rescue package to its national carrier Finnair, with access to further credit. The Dubai royal family is injecting equity into Emirates, their state carrier that’s pivotal to a tourism-reliant city and the world’s busiest airport for international travelers.
This transaction … will position [Singapore Airlines] for growth beyond the pandemic.
Dilhan Pillay Sandrasegara, CEO, Tamasek Holdings
The New Zealand government has announced a $900 million loan for the state-owned Air New Zealand. Thailand’s government has said it won’t let the state-owned Thai Airways collapse. Estonia is injecting $33 million into Nordica, its government-owned carrier. And true to Heng’s word, Singapore Airlines has received a $13 billion bailout package from its majority shareholder, state-funded Temasek Holdings.
“This transaction will not only tide SIA over a short-term financial liquidity challenge, but will position it for growth beyond the pandemic,” Temasek CEO Dilhan Pillay Sandrasegara said, while announcing the assistance.
Even private airlines that have secured bailouts can’t boast of the unqualified support that the governments of Singapore, Dubai and Thailand have offered their carriers. In the United States, the entire aviation industry must share an allocated $25 billion loan under the Coronavirus Aid, Relief and Economic Security Act — compared to $13 billion just for Singapore Airlines. The U.S. government will receive equity, warrant or debt instruments as compensation for the loan.
Others haven’t even been that fortunate. Flybe, Europe’s largest domestic regional airline until recently, collapsed in March as the U.K. government stalled on a 100 million pound ($123.5 million) loan. The British government is asking private airlines to reach out to their investors first, offering any help only as the last resort. Billionaire Richard Branson has been forced to put his prized Caribbean island, Necker Island, on the table as collateral for a 500 million pound ($617.7 million) loan to save Virgin Atlantic.
Debt-ridden Virgin Australia has also collapsed, after it failed to secure a part of Australia’s $715 million bailout package for the industry. Ravn, the largest regional carrier in Alaska, has filed for bankruptcy with most of its staff laid off and aircraft grounded. Meanwhile, cash-strapped Cathay Pacific has received $30 million from the Hong Kong government.
Economic disparities among countries and a difference in their priorities are creating an uneven playing field within the industry going forward, says London-based aviation analyst Alex Macheras. “While nations like Australia, Singapore, Finland and Hong Kong have already allocated financial aid to save their aviation industries, it’s becoming very clear that not all countries will, and as a result, we’ll witness a lot of airline casualties,” he says.
Indeed, not all national carriers have secured government bailouts. Africa’s biggest carrier, Ethiopian Airlines, is a state-owned airline still waiting to be rescued. It’s one of few major commercial operators still in operation on the continent, but suffered a revenue loss of $550 million in first quarter of 2020.
Ultimately, governments aren’t helping out airlines because they are state carriers, argues Macheras. “Instead the focus is on what role does the airline play within the country, and for most airlines, they play a vital role,” he says, “whether it’s providing the public with cheap fares or being a large carrier for imports and exports.”
Segun Demuren, CEO of Lagos-based EAN Aviation, a private terminal and maintenance facility, agrees that an airline’s balance sheet, routes and economic relevance are among the factors that eventually determine whether a government assists it in such times of crises. In South Africa, Demuren points out, the government has decided against bailing out its carrier, South African Airways, because of its poor track record. “It does not consider the airline … ‘critical’ enough to the South African economy,” he says. Where private airlines are seen as critical — whether in Hong Kong, the U.S. or Australia — they’ve received assistance, even if with conditions.
Yet the pandemic has also allowed state-owned airlines — otherwise portrayed as existing merely to satisfy national pride — to showcase their value in times of crises. India’s national carrier, Air India, has helped the country fly hundreds of stranded Indians back from coronavirus hot spots Iran and Italy, at a time private airlines aren’t flying. The U.S., Germany and other countries without national carriers have had to charter special planes to bring back their nationals.
To be sure, the overall outlook for the industry remains gloomy, as passenger traffic remains negligible in large parts of the world because of travel restrictions and individual safety concerns. As airlines continue processing flight refunds over the next few months, their financial stature might grow even more precarious. With the rise of Zoom and other virtual-meeting apps, business travel might come down as companies save on costs. And as the skies stay clean thanks to a global drop in man-made carbon emissions, advocacy against the sector could mount.
But while these challenges might sink some airlines, the industry itself is resilient, say experts. And state carriers might once again step up, well-positioned to take on private airlines that survive. The ultimate beneficiary of that competition will be passengers.
- Eromo Egbejule, OZY Author Contact Eromo Egbejule