The airline industry needs another $80 billion in financial aid from governments to get it through the upcoming winter season, IATA Direct General Alexandre de Juniac said last week ahead of Tuesday’s digital Annual General Meeting in Amsterdam. This comes on top of the $160 billion already provided as loan guarantees or direct aid. With the second wave of Covid-19 hitting airlines hard in the last months, we look at the situation at the EU’s six biggest airline-groups.
Air France-KLM received a combined EUR 11 billion in direct and indirect aid from the French (7 billion) and Dutch (3.4 billion) governments. It secured its going concern for Q3 and Q4 FY2020, but as French newspaper Le Monde reported last week the two airlines are in urgent need of a muted EUR 6 billion as early as Q1 FY2021. Of this, EUR 4 billion should come from governments and 2 billion from private investors.
Whereas the French have taken a “whatever it takes” approach to saving Air France, the Dutch government has firmed up its attitude towards KLM. Secretary of Finance Wopke Hoekstra has already hinted that new loan guarantees are unlikely, but he hasn’t ruled out taking more equity by increasing the Dutch share of currently 14 percent. This would need careful negotiations with the French who also have a 14 percent share in the airline.
Any state aid will not be unconditional. The first aid package to KLM was conditional to a 15 percent reduction in operating costs, which has led to some 5.000 redundancies so far. When Hoekstra in October unexpectedly demanded that unions and staff would adhere to pay cuts beyond 2022 to 2025 and pilot union VNV initially refused to give in, it caused huge internal and political tensions. In the end, VNV subscribed to the extended reduction scheme.
A new row seems to be growing of the reduction of night flights at Schiphol, which should drop from 32.000 to 29.000 and even to 25.000 in the coming years. This was part of the first aid package, but the government has taken KLM by surprise by stating in its new long-term aviation policy report last Friday that the reduction in night flights shouldn’t mean that they will shift to the 7-8 am and 22-23 pm windows. KLM responded by saying that it won’t be able to uphold its business model if even these windows are questioned.
Air France-KLM ended Q3 in September at a EUR -1.046 billion loss, of which EUR -807 million with Air France and EUR -234 million with KLM. The first nine months ended at a Group loss of EUR -3.414 billion, of which -2.401 billion with AF and EUR -1.002 billion with KLM. Leisure airlines Transavia and Transavia France reported a EUR -13 million Q3 loss and -206 million for January-September.
The Group has EUR 12.4 billion in liquidity available by the end of September. Cash burn was down from EUR 250 million in Q2 to 150 million in Q3.
Its ongoing restructuring should save Air France EUR 800 million in 2021 and 1.2 billion in 2022.
KLM has reduced capacity in Q4 in Europe from 50 to around 40 percent while its intercontinental network should operate at 50-60 percent.
Lufthansa Group’s airlines operate at 25 percent capacity until the end of this year, grounding another 125 aircraft during the winter period. It reflects the difficulty Lufthansa, SWISS, Austrian, Brussels Airlines, and Eurowings find themselves in.
After the EUR 9 billion state aid package provided by the German government (plus additional aid from the Swiss, Austrian, and Belgian governments), Lufthansa Group says it is on track to optimize and restructure its business and reduce costs. Monthly cash burn will be around EUR 350 million this quarter.
This comes at a price: until late September, some 14.000 staff had already left the Group. This is only half of what is needed to prepare Lufthansa Group for a smaller and more agile business model once the pandemic is over. Like at Air France-KLM, negotiations with unions have been long and difficult. Cabin crew was the first to accept the restructuring package, followed by cockpit crew. Only on November 11, ground staff union ver.di reached an agreement that should save Lufthansa EUR 200 million in costs. In return to cost savings, Lufthansa has guaranteed job positions for the next year until January 2022 when the short-time working compensation no longer applies.
For Q3, Lufthansa Group reported a net loss of EUR -1.967 billion. For the year to date to October, the net loss for the Group was EUR 5.584 billion. Of this, Lufthansa reported an Adjusted EBIT of EUR -2.635 billion, SWISS -445 million, Austrian -341 million, Brussels Airlines -233 million, and Eurowings -466 million.
At the end of September, Lufthansa Group had EUR 10.1 billion in liquidity. Early November, it secured EUR 600 million through the placement of unsecured convertible bonds. This confirmed the airline once again has access to private funds after it said last Summer the outlook for this was pessimistic.
International Airlines Group (IAG):
International Airlines Group (IAG), the parent of British Airways, Aer Lingus, Iberia, Vueling, and LEVEL, has been in the same difficult boat as its rivals. This includes melting revenues, mounting losses, and tough negotiations with unions about restructuring and job reductions. Within this environment, it is hardly incidental that the restructuring included not only ‘ordinary’ staff but also management. At BA, CEO Alex Cruz has been replaced by Sean Doyle, who joins from Aer Lingus. Donal Moriarty replaces Doyle at the Irish carrier. LEVEL’s CEO Fernando Candela has joined IAG’s management as Chief Transformation Officer.
The restructuring has produced already significant cost savings at all airlines, with British Airways reporting 50 percent, Iberia and Vueling 35 percent each, and Aer Lingus 30 percent. By October, 9.620 staff had left BA out of 12.000 planned. Aer Lingus plans 250 reductions but has also released 590 staff who were on short-term contracts. Iberia and Vueling have benefitted from the ERTE Force Majeure furlough scheme, but this will end in January. LEVEL shelved 430 positions after it ended its European operations and will only continue its New York and Buenos Aires services out of Barcelona.
IAG reported a Q3 loss after tax of EUR -1.211 billion compared to a 1.008 million profit last year. From January-September, the Group loss stands at EUR -3.176 billion versus a 1.814 billion profit.
Cash costs per week were down from EUR 450 million per week to EUR 205 million in Q3.
The Group bolstered its liquidity position to EUR 9.3 billion by the end of September thanks to a capital increase of 2.714 billion. In Q3, it generated EUR 380 million by the sale and leaseback of five additional aircraft, just as has been done in the previous quarters. It intends to offer more aircraft for SLBs in Q4, while it has more debt funding actions in the pipeline. Deliveries of 68 aircraft have been pushed out to 2022 and beyond.
With its financial year running from September to September, easyjet already has reported its full-year 2019/2020 results. At a GBP -1.273 billion loss before taxes, the airline delivered its first-ever loss. With operations grounded from April-June, easyjet was hit hard by the effects of the pandemic.
The outlook remains bleak, with capacity at only 20 percent for the October-December period.
Still, CEO Johan Lundgren is satisfied and proud of how the airline has weathered the past months. For this to succeed, it implemented a strict cost reduction program that has resulted in the loss of 30 percent of jobs. Negotiations with unions in the UK have been completed, with those in Germany, The Netherlands, and Portugal are in progress. Headline costs excluding fuel were down -30.8 percent by looking at all aspects of operations, maintenance, crew, ground handling, and airport fees. Restructuring costs amounted to GBP 123 million.
During FY20, the airline has raised GBP 3.1 billion in cash through loans, credit facilities, and sale and leasebacks of 23 aircraft. During Q1 FY21, another 30 have been refinanced through SLB. The fleet of easyjet is now 55 percent owned, of which 37 percent unencumbered. By the end of September, easyjet had 342 Airbus-aircraft but it plans to reduce this to 302 in FY21 but this depends on market situations. Net cash position by the end of September was GBP 2.3 billion, with cash burn reduced from GBP 774 million in Q3 to 651 million in Q4.
For the next year, easyjet will concentrate on maintaining its network position at primary airports but expects to see extra competition here. It will try to capture a slice of the leisure market by opening seasonal bases in Faro (Portugal) and Malaga (Spain) while adding cities to the schedule that offer potential. Like stated by Lufthansa, easyjet will only operate on routes that generate positive cash.
Easyjet has prepared itself for a non-Brexit from January. For this, it applied for EU AOC’s already a few years ago that will allow it to operate outside the UK without restrictions. For this, the level of EU ownership after the transition period should remain over 50 percent. Currently, at 42.5 percent, the airline would be forced to activate provisions in its ownership regulations that permit it to sell force non-EU shareholders to sell shares to EU nationals.
Like easyjet, Ryanair too was forced to suspend its operations for most of the summer period. It only operated at one percent between the end of March and July. It was back to 60 percent in July to September with load factors reaching 70 percent again, but the second Covid wave has once again impacted the Irish low-cost, which has revised its full-year capacity outlook from 60 to 40 percent and total passenger numbers to 38 million, some 100 million below FY20.
Ryanair reported a EUR -197 million net loss for the first six months of its FY2021. Revenues were down -78 percent to EUR 1.18 billion as passengers requested a record number of cancelations. The airline Group that includes Ryanair, Lauda, Buzz, and Malta Air, has aggressively cut costs, which also led to confrontations with unions and staff. A few hundred positions have been made redundant after staff at Lauda and Air Malta failed to comply with Ryanair’s terms, resulting in the transformation of Lauda from airline to the wet-lease provider.
Michael O’Leary is proud of the strong financial position of his airline, with liquidity at EUR 4.5 billion by the end of September. Except for payroll support from the UK government, he stresses that Ryanair is operating without any state aid and has filed complaints with the European Commission against airlines that have.
Like easyjet, Ryanair says it is prepared for a no-deal Brexit. It has the same legal toolkit available to make sure that its subsidiaries in Ireland, Malta, Austria, and Poland have EU-ownership.
Eastern European airline Wizz Air has been bucking the trend by continuing its rapid and aggressive strategy when most competitors have been struggling. During its first half-year of FY2021, the airline opened up 13 new bases and positioned 29 aircraft there. Wizz Air strengthened its presence in the UK (notably at Gatwick), in Italy, Germany, Russia, Albania, Ukraine, and notably: in Norway. By positioning four aircraft in Oslo and Trondheim and opening up ten domestic routes, Wizz Air is going head-on with its weakened rival Norwegian.
Wizz Air reported an HY1 net loss of EUR -243.1 million, of which -135.1 million in Q2. That quarter from July-September, it operated at 72 percent capacity compared to 2019 and saw load factors at 66 percent. The airline has EUR 1.560 billion in cash available and expects to maintain a monthly cash burn of EUR 70 million for the rest of this fiscal year. Part of this has been produced by a reduction of staff and a salary decrease. Even if the airline would be grounded until next April, Wizz Air still expects to have sufficient liquidity to continue until October 2021.
Wizz Air continues to take delivery of new Airbus neo’s, of which it has purchase commitments for 257. This includes 20 A321XLRs. It took delivery of 11 neo’s in HY1, with three to follow before the end of 2020. The calendar year 2021 includes 24 deliveries but in 2022 only two. For some aircraft, sale and leasebacks have been arranged.