Categories
Politics

U.S. offers $58 billion aid to airlines as governments seek to avert bankruptcies

SINGAPORE/DUBAI (Reuters) – Governments stepped up efforts on Thursday to help airlines hammered by a virus-induced travel slump, with the United States offering $58 billion in aid, Singapore promising to keep its carrier aloft, and Australia easing competition rules.

AirAsia, the region’s biggest budget carrier, was the latest airline to announce sweeping cuts to its schedule in response to the deepening crisis caused by the coronavirus outbreak. It said some of its units would halt flights altogether for a period.

“Nobody can survive this for more than a few months, when you have this unprecedented 95% decline in passenger numbers or even 100% in some cases and you still have all those fixed costs,” said Brendan Sobie, an aviation analyst in Singapore.

In a desperate bid to preserve some revenues and keep global supply chains operating, U.S. Delta Air Lines, Air New Zealand and Abu Dhabi’s Etihad Airways joined a list of carriers that have turned passenger planes into cargo-only transporters.

About half of the world’s air cargo normally travels in the bellies of passenger planes, so the cancellation of passenger flights has led to a sharp reduction in cargo capacity, with knock on effects to food, industry and other vital trade.

“For airlines, it’s apocalypse now,” said Alexandre de Juniac, director general of the International Air Transport Association (IATA), which represents carriers around the world.

“Travel restrictions and evaporating demand mean that, aside from cargo, there is almost no passenger business,” he said.

In an unprecedented move, the U.S. Senate passed a $58 billion aid package late on Wednesday, half in the form of grants to cover some 750,000 airline staff wages. Those receiving funds cannot lay off employees before Sept. 30 or change collective bargaining pacts. [L1N2BI0XW]

The bill has restrictions on stock buybacks, dividends and executive pay, and allows the government to take equity, warrants or other compensation as part of the rescue package.

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The U.S. House of Representatives is expected to back the move on Friday. President Donald Trump has promised to sign it.

‘CORPORATE ACTION’

U.S. airlines, like others around the globe, have been reeling from the slide in passenger numbers.

United Airlines Holdings said capacity would drop 68% in April and Alaska Air Group cut its schedule by 70% in April and May. American Airlines suspended its dividend, drew down a $400 million credit line and secured an additional loan.

IATA, which estimates the pandemic will cost the global industry $252 billion in lost revenues this year, said it had written to 18 countries in the Asia-Pacific region, including India, Japan and South Korea for emergency support for carriers.

Singapore’s finance minister Heng Swee Keat said Singapore Airlines Ltd would soon announce “corporate action” supported by state investor Temasek Holdings to tackle the crisis. Share trading in the carrier, which said this week it was seeking extra funds, was halted on Thursday.

Malaysian budget airline AirAsia Group said it had suspended some of its international and domestic flights, while its India and Philippines units were suspending all flights for certain periods.

Australia and New Zealand have joined other governments in announcing some financial relief. But this has not stopped carriers from putting staff on leave and grounding planes.

Virgin Australia plans to permanently cut more than 1,000 jobs among the 8,000 staff that have already been stood down. Australia’s Flight Centre Travel Group said it would cut 6,000 travel agent roles globally.

In a move unthinkable under normal conditions, Australia’s competition regulator said it would allow Virgin, Qantas Airways and Regional Express to coordinate flight schedules and share revenue on 10 regional routes.

“We hope that this temporary measure will also support airlines’ ability to again compete with each other on these routes once the pandemic crisis has passed,” Australian Competition and Consumer Commission Chairman Rod Sims said.

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Business

Qantas shares soar on financing deal as rivals cut more capacity

SYDNEY (Reuters) – Qantas Airways Ltd (QAN.AX) on Wednesday secured A$1.05 billion ($627.8 million) against its aircraft fleet to help it ride out the coronavirus crisis, sending shares up 30%, as airlines in the Asia-Pacific region sliced away capacity and jobs.

The Qantas financing of seven Boeing Co (BA.N) 787-9s for up to 10 years at a 2.75% interest rate showed there is still low-cost funding available to airlines with strong fundamentals, even as the global industry calls for more government aid to help replace an estimated $250 billion of lost revenue in 2020.

“Over the past few years we’ve significantly strengthened our balance sheet and we’re now able to draw on that strength under what are exceptional circumstances,” Qantas Chief Executive Alan Joyce said in a statement.

Qantas has cut all international flights and put two-thirds of its 30,000 staff on leave but so far has maintained its investment-grade credit rating.

It is continuing with a costly program to upgrade the interior of its grounded Airbus SE (AIR.PA) A380 super-jumbos, in an expression of confidence demand will eventually return to normal.

Other airlines in the region are also looking at ways to raise cash beyond government aid.

Korean Air Lines Co Ltd (003490.KS) said on Wednesday it would seek to raise funds by selling non-core assets, as it announced a pay cut of up to 50% for all of its executives.

Hong Kong’s Cathay Pacific Airways Ltd (0293.HK) this month sold six 777-300ERs to BOC Aviation Ltd (2588.HK) for $703.8 million and will lease them back.

Singapore Airlines Ltd (SIAL.SI) said on Monday it was in talks with several financial institutions over future funding needs after having drawn on credit lines.

NOT BUSINESS AS USUAL

Cash-strapped Virgin Australia Holdings (VAH.AX) said on Wednesday it would stop 90% of its domestic flying in addition to a freeze on international flights and put 80% of its 10,000 employees on leave.

Virgin is also looking to close its New Zealand cabin crew and pilot bases and its pilot base for low-cost arm Tigerair Australia in Melbourne, in a sign it would not return to business as usual when demand returns.

“We plan to return Tigerair Australia and Virgin Australia to the skies as soon as it is viable to do so. However, I am mindful that how we operate today may look different when we get to the other side of this crisis,” Virgin Chief Executive Paul Scurrah said in a statement.

Air New Zealand Ltd (AIR.NZ), which plans to cut up to 30% of its staff, has also warned it could re-emerge as a smaller airline once the coronavirus situation subsides.

Other Asian carriers have deepened capacity cuts, with Thai Airways International PCL (THAI.BK) on Tuesday cancelling nearly all of its international flights as demand for travel slumps amid the coronavirus outbreak.

Japan Airlines Co Ltd (9201.T) said on Tuesday it would cut flights on international routes from the country by about 64% between March 29 and April 30.

Boeing Co’s (BA.N) chief financial officer said that on Tuesday the U.S. aerospace industry urgently needs credit to cope with the coronavirus pandemic but that “markets essentially are closed” to new debt.

U.S. lawmakers are nearing agreement on a $61 billion rescue package for the aviation sector that would include $25 billion in payroll grants for passenger airlines weathering a sharp falloff in travel demand amid rising coronavirus outbreaks, three people briefed on the matter said.

Data firm Cirium on Tuesday estimated the number of aircraft placed in storage since January had climbed to 3,500 – up 1,000 from a day earlier – as more airlines ground planes.

Taxiways, maintenance hangars and even runways at major airports are being transformed into giant parking lots.

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Business

Coronavirus shockwave rocks airplane manufacturers, suppliers

SYDNEY/MONTREAL (Reuters) – The pandemic is taking its toll on aerospace manufacturing, as Boeing Co (BA.N) announced it would halt production of most widebody jets and Airbus SE (AIR.PA) restarted only partial output after a four-day shutdown as suppliers cut jobs.

With airlines unable to fly because of a collapse of demand over fears of contagion, reinforced by air travel restrictions, planemakers and their suppliers are under pressure to save cash to ride out a squeeze on liquidity.

Moody’s cut its outlook for the aerospace and defense industry to negative from stable and warned that even when markets recover, the damaged balance sheets of most airlines would hurt demand for new aircraft.

Global passenger capacity fell by 35% last week, the worst since the start of the crisis, according to data from airline schedules firm OAG, which said deeper cuts were likely in the coming weeks.

Boeing faces the shutdown of key assembly lines for the second time in a year after being forced to halt production of its grounded 737 MAX aircraft in January.

Production of long-haul jets like the 787 and 777 in Washington state will pause for 14 days starting Wednesday, forcing the world’s largest industrial building, the giant Boeing wide-body plant at Everett north of Seattle, to fall silent for the first time in recent memory.

As the crisis deepens, U.S. lawmakers are considering changing some of about $58 billion in proposed emergency loans to the airline industry to cash grants to cover payroll costs, four people familiar with the matter said.

Democratic U.S. lawmakers late on Monday proposed giving struggling U.S. airlines and contractors $40 billion in cash grants that would not be paid back and would require significant new environmental, labor and other conditions.

Brazil’s Embraer SA (EMBR3.SA), the world’s third-largest aircraft maker, said on Sunday it would furlough all non-essential workers in Brazil where it makes regional jets and further measures could be announced later this week.

Joining the list of temporary shutdowns is Bombardier, which is suspending Canadian production of business jets, according to a source familiar with the matter.

Airbus chief executive Guillaume Faury had called for strong government support for airlines and suppliers but stopped short of calling for direct aid for Airbus itself, which has secured an extra 15 billion euros ($16.14 billion) of commercial credit lines.

The European planemaker has, however, told officials privately that it may need European government help if the crisis lasts for several months, Reuters reported last week.

Industry executives said the biggest source of alarm was the global supply chain of thousands of suppliers who would be severely hurt by abrupt stop-start movements in plane output. Many are already severely stressed by the year-long 737 MAX grounding.

The International Association of Machinists and Aerospace Workers on Monday said in a letter to Congress that more than 500,000 U.S. aerospace production jobs could be in jeopardy and called for a relief package that included provisions to protect against layoffs.

Engine maker GE Aviation (GE.N) announced plans to cut its U.S. workforce by around 10%, according to a letter to staff.

GE’s aviation unit employed about 52,000 people globally as of 2019, with about half of them working in the United States.

Montreal-based training specialist CAE Inc (CAE.TO) has temporarily closed three commercial aviation training centers and is laying off 465 manufacturing workers and slashing executive salaries and capital spending to contain costs.

German aircraft engine maker MTU Aero Engines (MTXGn.DE) said it would shut output in some European plants for three weeks.

The shutdowns are designed in part to allow for deep cleaning and the re-organisation of factory workers, who must stand further apart and avoid working in clusters, slowing output.

But analysts expressed doubts over the strength of future demand as the industry recovers from its worst crisis.

A global recession combined with the possibility that corporate travel does not recover could hamper a full recovery, said Martin Hallmark, a senior vice president at Moody’s Investors Service.

The ratings agency expects airline passenger volumes to fall by 25% to 35% this year.

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Business

House Democrats would give airlines, contractors $40 billion bailout

CHICAGO/WASHINGTON (Reuters) – Democratic U.S. lawmakers on Monday proposed giving struggling U.S. airlines and contractors $40 billion in cash grants that would not have to be paid back but require significant new environmental, labor and other conditions.

The U.S. House of Representatives bill, which provides $2.5 trillion in stimulus and assistance to the U.S. economy in the face of the coronavirus outbreak, would award $37 billion in grants to airlines and $3 billion in grants to employees of ground-support and catering contractors.

Airlines could also receive $21 billion in loans that would be at zero percent financing for the first year.

Republicans and Democrats were still struggling on Monday to reach agreement on a far-reaching coronavirus stimulus package, including the airline aid, after failing to reach a deal over the weekend.

Republicans have opposed providing bailouts to the passenger and cargo carriers, proposing help in the form of $58 billion in loans and saying the government could demand stock, options or other equity as part of those loans.

The House bill would also set aside $1 billion to eliminate high-polluting airplanes. It would cap chief executive pay at no more than 50 times the median pay of employees and bar stock buybacks.

It would also require that “no additional aircraft heavy maintenance work is outsourced to repair stations abroad” and require airlines to have a labor union-designated director.

Airlines would have to maintain “at least $15 minimum wage for all employees or contracted workers.”

Airlines receiving assistance would need to fully offset their carbon emissions starting in 2025 and reduce carbon emissions by 50% by 2050. They would also be required to tell customers the amount of carbon emissions attributed to their flights.

Airlines made a plea over the weekend that $29 billion of $58 billion sought in assistance be in the form of cash grants. In return, they offered to make no job cuts through Aug. 31 and to accept curbs on executive pay and forgo paying dividends or stock buybacks.

Airlines including United Airlines Holdings Inc UAL.N have also said they are encouraging employees to apply for voluntary unpaid leaves of absence among other measures aimed at saving costs. [nL1N2BA2X4]

Globally, the number of scheduled flights last week was down more than 12% from a year ago, flight data provider OAG said, and many airlines have announced further cuts to come as demand continues to drop.

Southwest Airlines Co (LUV.N) became the latest U.S. airline to slash its capacity by about 25% on Sunday, bringing forward and increasing cancellations that were initially due to run between April 14 and June 5. The cancellations include the suspension of all international flying until May 4, it said.

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Business

Skies clear as more flights grounded by growing coronavirus curbs

SYDNEY (Reuters) – Widening curbs on travel to contain the spread of the coronavirus led airlines to ramp up flight cancellations on Monday, with new restrictions spanning Australia, New Zealand, the United Arab Emirates (UAE), Hong Kong, Singapore and Taiwan.

Globally the number of scheduled flights last week was down more than 12% from the year earlier, flight data provider OAG said, with many airlines having announced further cuts to come.

“It is a war against a virus,” Andrew Herdman, director general of the Association of Asia Pacific Airlines, told Reuters by telephone on Monday.

Credit ratings agency Moody’s estimated global capacity would fall by 25% to 35% in 2020, assuming the spread of the coronavirus slowed by the end of June.

Australia and New Zealand both warned against non-essential domestic travel, while the UAE halted flights and Hong Kong, Singapore and Taiwan took steps to ban foreign transit passengers.

“What we have to do is take care of the institutions and people’s livelihoods, the soft capital, so that we can restart effectively in a timely way when the time comes,” Herdman said.

The UAE, home to major carriers Emirates [EMIRA.UL] and Etihad Airways, said it would suspend all passenger flights and airport transit for two weeks to help rein in the virus.

The UAE’s decision takes effect in 48 hours, with cargo and emergency evacuation flights exempted. Emirates responded by saying it would temporarily suspend all passenger services for two weeks from March 25.

Singapore Airlines (SIAL.SI) had been planning to halve its international capacity before the Asian city-state banned entry or transit by short-term visitors on Sunday.

It stepped that up to a cut of 96% until at least the end of April, with plans to ground most of its fleet.

The airline normally relies heavily on connecting passengers from markets such as Australia to Europe, and India to North America through its Singapore hub.

Singapore Airlines said it would look to defer aircraft deliveries and has drawn on lines of credit to meet immediate cashflow requirements.

Taiwan announced similar curbs that will hit China Airlines Ltd (2610.TW) and EVA Airways Corp (2618.TW), which have marketed Taipei as a convenient and affordable transit airport, competing with Hong Kong and Singapore.

In Hong Kong, Cathay Pacific Airways Ltd (0293.HK) has cut its passenger capacity by 96% in April and May as government curbs hit travel.

The impact on planemakers has been deep and sudden and on Monday planemaker Airbus (AIR.PA) announced new steps to bolster its financial position, including the signing of a credit facility for 15 billion euros ($16.1 billion).

Airbus added it was withdrawing its 2020 financial guidance, dropping a proposed 2019 dividend that had a cash value of 1.4 billion euros ($1.5 billion) and suspending funding to top up staff pension schemes.

Airbus said it had enough liquidity to cope with any further cash requirements related to the coronavirus, adding that it had around 30 billion euros worth of available liquidity.

Its U.S. rival Boeing (BA.N) is under similar pressure and has called for a $60 billion lifeline for the U.S. industry.

GOING SOUTH

In the southern hemisphere, Qantas Airways Ltd (QAN.AX), Virgin Australia Holdings Ltd (VAH.AX) and Air New Zealand Ltd (AIR.NZ) were re-examining schedules after their governments advised against non-essential domestic travel.

Regional Express Holdings Ltd (REX) (REX.AX), which serves remote Australian towns, said it would shut all operations, except some subsidised routes, from April 6, unless governments quickly expressed a willingness to underwrite its losses.

In Hawaii, which ordered 14 days in quarantine for all arrivals from Thursday, Hawaiian Airlines (HA.O) said it would suspend most long-haul passenger services except for a daily flight from Honolulu to Los Angeles and a weekly flight to American Samoa.

In mainland China, domestic capacity has been rising as some internal curbs are eased, but there are concerns that passengers on international flights could re-import the virus.

More than 570,000 flights to, from and within, China were cancelled from Jan. 1 to March 16, data provider Cirium says.

China’s aviation regulator said all international flights due to arrive in the capital will be diverted from Monday to other airports in the country.

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Categories
World News

As coronavirus travel restrictions ramp up, major airline hubs take a hit

Airlines canceled more flights on Monday as Australia and New Zealand advised against non-essential domestic travel, the United Arab Emirates (UAE) halted flights for two weeks and Singapore and Taiwan banned foreign transit passengers.

The UAE, home to major carriers Emirates and Etihad Airways, will suspend all inbound and outbound passenger flights and airport transit for two weeks to help curb the spread of the coronavirus, state news agency WAM reported.

The decision will take effect in 48 hours and is subject to reassessment, WAM reported, noting that cargo and emergency evacuation flights were exempt.

Emirates, one of the world’s biggest long-haul airlines, said on Sunday it would stop nearly all passenger flights this week and cut staff wages by as much as half because of the coronavirus impact on travel demand.

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Business

Airlines face reckoning as government help comes with strings attached

OSLO/SYDNEY (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.

In a move that would provide more immediate relief to the broader industry, Brussels agreed to suspend a rule requiring airlines to run most of their scheduled services or else forfeit landing slots until October. Final go-ahead may come next week.

The waiver would also apply retroactively from Jan. 23 to Feb. 29 for flights between the European Union and China or Hong Kong.

Norway offered to back airlines with credit guarantees worth up to 6 billion Norwegian crowns ($537 million), but stricken budget carrier Norwegian Air Shuttle ASA (NWC.OL) may struggle to comply with the tough terms.

In New Zealand, the government 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 (AIR.NZ) chief executive Greg Foran told reporters of the loan, which it will not draw down immediately.

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“We would expect the airline industry will look different at the end of this. Not all airlines are going to survive.”

Air New Zealand’s (AIR.NZ) bailout also depends on the company suspending its dividend and paying interest rates of 7% to 9%.

Under the $58 billion U.S. proposal for passenger and cargo carriers, the U.S. Treasury Department could receive warrants, stock options, or stock.

“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.”

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 jumped 16%.

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.

JOBS GONE

Underscoring worries about carriers’ debt and ability to weather the storm, agency Standard & Poor’s on Friday cut its credit ratings on Europe’s top four airlines, Lufthansa, British Airways owner IAG (ICAG.L), easyJet (EZJ.L) and Ryanair (RYA.I), and put them on negative creditwatch.

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.

BA 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’ Association.

Britain’s Heathrow Airport, usually Europe’s busiest airport, is cutting costs by cancelling executive pay, freezing recruitment and reviewing all capital projects.

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.

($1=1.7652 New Zealand dollars)

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Business

Steep capacity cut leaves airlines with overhedged jet fuel headache

SYDNEY/SINGAPORE (Reuters) – The collapse in global passenger flights has left airlines with fresh challenges: how to manage overhedged jet fuel positions as oil prices crashed to just a third of some contracts agreed in anticipation of rising prices and solid air travel demand.

A shattered global airline industry is now seeking tens of billions dollars from state bail-outs to absorb the shock from the coronavirus pandemic, as many have grounded almost entire fleets and placed thousands of workers on unpaid leave to stay afloat.

With a sharp plunge in oil prices and the rapid spread of the flu-like virus globally raising uncertainty when and how strongly air travel demand will recover, airlines are now left counting the cost of their heavy fuel hedging.

“Given the substantial reduction in our capacity, we do have an overhedged position and that will come at a cost… that we’ll realize in the next couple of months,” Australia’s Qantas Airways Ltd (QAN.AX) Chief Financial Officer Vanessa Hudson told analysts this week.

“That’s going to be a key part of how we manage our cash inflows and cash outflows. So in terms of a specific number, that’s just going to be a part of our fuel consumption and cost that we have in this quarter but also into next quarter.”

Global oil prices LCOc1 are down nearly 60% from the start of the year after talks between the Organization of the Petroleum Exporting Countries and its allies including Russia, broke down, which led Saudi Arabia to ramp up supply and start a price war.

Brent crude futures slumped below $30 a barrel earlier this week to its lowest since 2003. [nL4N2BD0NQ]

Many airlines usually manage their fuel costs by locking in future prices through derivative trades known as hedges to protect against sharp price hikes. Airlines last suffered billions of dollars of losses on their fuel hedges during the 2015-2016 oil price crash.

Asian refining margins for jet fuel JETSGCKMc1, which normally trade at a hefty premium to crude oil, plunged this week to the lowest ever based on Refinitiv data going back to early 2009 due to weak demand from airlines and other transport industries.

Several airlines have already hedged the bulk of their normal annual fuel consumption at levels nearly two to three times that of current Brent and jet fuel prices JET-SIN.

“If we do not fly, what does it mean for our hedging? Well, there will be a certain, as you say, loss go through the P&L every month, which will be then be classified into financial costs since there will be no flying,” Lufthansa (LHAG.DE) chief financial officer Ulrik Svensson told analysts this week.

Singapore Airlines (SIAL.SI) hedged nearly three-quarters of its fuel for the financial year that begins in April, with 51% hedged on jet fuel at $71 a barrel and 22% on Brent at $58.

Cathay Pacific (0293.HK) hedged around 35% of its jet fuel throughout this year at between $61.37 and $65.41 per barrel of Brent, while Air France KLM (AIRF.PA) is hedged 63% for the first half of the year at an average $638 per tonne of jet fuel, or $81 a barrel.

Ryanair (RYA.I) has 90% of its jet fuel consumption hedged in the current quarter at $667 a tonne, falling to $649 a tonne in the June quarter, and AirAsia X (AIRX.KL) has 80% of its oil hedged for the first quarter and 71% for the second quarter at an average price of $60 per barrel.

Some airlines are already plotting their future hedging strategy, with the recent plunge not deterring them from taking out protection against future price rises.

“We are thinking around how to structure our hedge profile to ensure that we’ve got both our participation (in a price fall) but protection as well from a higher fuel price,” Qantas’ Hudson said.

“Because what we’ve seen in the past is that when demand returns and recovers, that fuel price most likely will increase. So we are staying flexible and thinking about both sides of the recovery process.”

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Business

'Strings attached': Governments offer financial lifelines to airlines, at a price

SYDNEY/WASHINGTON (Reuters) – Shattered airlines were left counting the cost of government support as politicians in the United States and New Zealand set out conditions for bailouts needed to absorb the shock of coronavirus.

Conditions include provisions that loans may convert to government equity stakes, with Air New Zealand Ltd’s (AIR.NZ) bailout also dependent on suspending its dividend and paying interest rates of 7% to 9%, while U.S. airlines cannot increase executive pay or provide “golden parachutes” for two years.

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 survive.”

Under the $58 billion U.S. proposal for passenger and cargo carriers, the U.S. Treasury Department could receive warrants, stock options, or stock as a condition of government assistance in order for the government to participate in gains and be compensated for risks.

“We are not bailing out the airlines or other industries – period,” U.S. Senate Appropriations Committee Chairman Richard Shelby said in a statement. “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 it to Norwegian Air Shuttle ASA (NWC.OL), but conditions include raising money from commercial lenders and the equity market.

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, which could come in various forms – cash, equity, loans, bonds etc – but it all must come with strict conditions or strings, attached,” Shukor Yusof, head of Malaysia-based aviation consultancy Endau Analytics, said in an email.

Even with financial assistance, airlines around the world are placing thousands of workers on unpaid leave, deepening the shocks to local economies.

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 in a statement.

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 Ltd (0293.HK) said it would slash passenger capacity by 96%, and possibly more in April and May, 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.

Some airlines are looking to place their staff with temporary employers. Air New Zealand may redeploy some workers to the government, possibly in health roles and contact tracing, New Zealand’s finance minister told reporters.

Qantas Airways Ltd (QAN.AX) is talking to Australian retailer Woolworths Group Ltd (WOW.AX) about job opportunities as grocery sales surge, while more than 1,000 laid-off SAS (SAS.ST) airline workers in Sweden are being offered fast-track healthcare training to help fight the coronavirus.

The only bright spot for the industry is the cargo market. Passenger planes normally carry about half the world’s air cargo in their bellies, with the remainder hauled in dedicated freighter aircraft.

The collapse in passenger flights has tightened the cargo market, leading some carriers to fly planes empty of passengers and baggage but with cargo in their bellies.

American Airlines Group Inc (AAL.O) said on Thursday it would use some of its grounded Boeing 777 passenger jets to move cargo between the United States and Europe, in its first scheduled cargo-only flights since 1984 when it retired the last of its 747 freighters.

Normally 65% of cargo capacity from mainland Europe and the Britain to the United States is belly space on passenger aircraft, according to Seabury Consulting.

“Space is available, but at premium rates and without transit time guarantees,” logistics company Agility said on its website.

In the Asia-Pacific, Qantas, Cathay, Korean Air Lines Co Ltd (003490.KS) are also operating some flights with empty seats but bellies full of cargo.

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Business

Airline industry turmoil deepens as coronavirus pain spreads

SYDNEY/WASHINGTON (Reuters) – Airline industry turmoil deepened on Thursday as Qantas Airways Ltd (QAN.AX) told most of its 30,000 employees to take leave and India prepared a rescue package of up to $1.6 billion to aid carriers battered by coronavirus, government sources said.

The U.N.’s International Civil Aviation Organization called on governments to ensure cargo operations were not disrupted to maintain the availability of critical medicine and equipment such as ventilators, masks, and other health and hygiene items that will help reduce the spread of the coronavirus pandemic.

Passenger operations have collapsed at an unprecedented rate as the virus spreads around the world, with Delta Air Lines Inc (DAL.N) parking more than 600 jets, cutting corporate pay by as much as 50%, and scaling back its flying by more than 70% until demand begins to recover.

Shares in U.S. airlines fell sharply on Wednesday after Washington proposed a rescue package of $50 billion in loans, but no grants as the industry had requested, to help address the financial impact from the deepening coronavirus crisis.

The Trump administration’s lending proposal would require airlines to maintain a certain amount of service and limit increases in executive compensation until the loans are repaid.

American Airlines Group Inc (AAL.O) in a memo to staff rebuffed criticism that it had rewarded its shareholders with too many dividends and stock buybacks in better times, leaving it with less cash to manage the crisis.

“Unfortunately, this is no ordinary rainy day,” said Nate Gatten, American’s senior vice president global government affairs. “These are extraordinary circumstances, and additional support is necessary to protect jobs and ensure that the flying public can continue to rely on our industry after the crisis ends.”

In Australia, Qantas said it would cut all international flights after the Australian government warned against overseas travel and two-thirds of its 30,000 workers would need to take paid or unpaid leave.

“The sad fact is that due to circumstances beyond our control, travel demand has evaporated,” Qantas Chief Executive Alan Joyce said in a memo to staff seen by Reuters. “We have no work for most of our people.”

Senior Qantas executives and the board will take a 100% pay cut until at least the end of the financial year ending June 30, up from 30% earlier, joining the chairman and CEO in taking no pay, the airline said.

In China, the epicenter of the outbreak, its biggest state-backed carriers reported a 80% plunge in passengers carried in February and said they would further optimize capacity and step up cost-cutting.

As countries step up border restrictions, more flights are being cut. Air Canada (AC.TO) said it was gradually suspending the majority of its international and U.S. transborder flights by March 31.

India is poised to join a growing list of countries offering aid to its aviation industry. The Finance Ministry is considering a proposal worth up to $1.6 billion that includes temporary suspension of most taxes levied on the sector, according to two government sources who have direct knowledge of the matter.

New Zealand on Thursday outlined the first tranche of a NZ$600 million ($344 million) aviation relief package, including financial support for airlines to pay government passenger charges and cover air traffic control fees.

The New Zealand government on Thursday advised citizens not to travel overseas because of the risks posed by the coronavirus.

Air New Zealand Ltd (AIR.NZ) said it would close its cabin crew base in London earlier than initially planned, leading to the loss of 130 jobs. [nL4N2BB524]

Budget carrier easyJet PLC (EZJ.L) and its U.K. pilot union signed an agreement to minimize the risk of pilot layoffs in Britain over the next 18 months, including a pay freeze and asking all crew to take unpaid leave from March 23 to June 22, according to a memo seen by Reuters.

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