The airlines most in danger of going under during the coronavirus crisis

HONG KONG (BLOOMBERG) – The global airline industry has never had it so bad. Not even after the 9/11 terrorist attacks.

Airlines could lose a quarter of a trillion dollars in revenue this year, according to the International Air Transport Association, as travel comes to a standstill with countries locked down to fight the coronavirus. Most carriers will go bankrupt by the end of May if they can't find support, Sydney-based CAPA Centre for Aviation said last week.

"In this very difficult period, it will only be the survival of the fittest" – Qatar Airways CEO Akbar Al Baker

Which airlines are most at risk? Like the virus, the crisis is indiscriminate, affecting everyone from budget operators to national flag carriers. Aircraft manufacturers and their suppliers also are under immense pressure, with Boeing calling for billions of dollars in state support and Airbus extending credit lines and canceling its dividend.

Using the Z-score method developed by Edward Altman in the 1960s to predict bankruptcies, Bloomberg News filtered out listed commercial airlines to identify the ones most at risk of going bust, based on available data. The calculations don't take into account government bailouts or other funding sources that could help keep operators alive.

While the list is concentrated in Asia, mostly due to high debt levels, European carriers aren't immune, as the collapse of UK regional airline Flybe Group proved. According to Altman, scores of 1.8 or below indicate a risk of bankruptcy and scores over 3 suggest sound footing. Indebted low-cost carrier Norwegian Air Shuttle ASA and Air France-KLM both landed below the threshold, as did American Airlines Group and SkyWest.

Governments around the world are in talks with aviation companies about financial support, and those with deep-pocketed backers – such as Delta Air Lines with billionaire investor Warren Buffett – will have access to other avenues for cash.

Singapore Airlines on Thursday announced it plans to raise up to $15 billion with backing from state investment company Temasek Holdings. This will be done by issuing new shares to current shareholders to raise about $5.3 billion and issuing mandatory convertible bonds to raise up to $9.7 billion. Temasek, which now owns about 55 per cent of the airline, has pledged to take up any remaining shares and bonds that are not subscribed.

Qatar Airways chief executive officer Akbar Al Baker warned that many airlines will go bust, limiting the scope for takeovers.

"People that were bragging about not taking state aid and being independent are now themselves all over the world asking for state aid," he said on Thursday (March 26) on Bloomberg Television.

The Z-score involves five variables measuring liquidity, solvency, profitability, leverage and recent performance. The model initially had accuracy rates of over 95 per cent in predicting bankruptcies, but has come down to between 80 per cent and 90 per cent based on a year before insolvency, Altman said in a 2018 interview.

A spokesman for Pakistan International Airlines said losses and debt have become too much for the company to handle alone and that options suggested to the government include a debt-to-equity swap and long-term bond issue. A representative for AirAsia Group declined to comment, while PNG Air didn't respond to a request for comments. The communications director for Kenya Airways, which is now operating only five local daily flights, couldn't immediately comment.

SpiceJet sees "no possibility at all" of failing, has maintained adequate cash flows and expects a surge in demand as the virus is contained, a spokesman said. Virgin Australia Holdings, which has furloughed 80 per cent of its workforce and slashed flights to a bare minimum, said it is taking measures to rapidly reduce its cost base to preserve cash.

Asiana Airlines said it secured a bridge loan and will receive 1.6 trillion won (S$1.89 billion) from Korea Development Bank and other creditors. It also said financials will improve once HDC Hyundai Development and its partners complete their acquisition of Kumho Industrial's stake. Also, the Korean government will meet Friday to discuss the airline industry and measures to provide emergency funds to large companies, Yonhap News reported Thursday.

Avianca Holdings didn't respond to requests for comment. The Bogota-based company has offered its 21,000 employees unpaid leave and is negotiating payment terms with suppliers.

Norwegian Air is trying to secure a government lifeline worth up to US$270 million (S$386 million) under certain conditions, and this week two Nordic banks were approved to provide a guarantee for the required 10 per cent for the first tranche. The airline declined to comment further.

A spokeswoman for Air France-KLM declined to comment. The airline counts the French and Dutch governments as its biggest shareholders, and both governments have signaled they will provide support if needed.

American and SkyWest declined to comment. US passenger carriers are poised to receive up to US$25 billion in payroll support funds and cargo haulers $4 billion — earmarked for items like salaries, benefits and healthcare – with a like amount of loans.

Much hinges on an airline's ability to use cash in hand or access more money. Some in Asia, including Korean Air, Asiana, China Southern Airlines and China Eastern Airlines have reserves to last only weeks, according to Bloomberg Intelligence. IndiGo, operated by InterGlobe Aviation, has enough to last about a year even if its fleet remains grounded (and staff costs drop only 30 per cent), BI analysts including James Teo wrote in a note on Wednesday.

Different methods of estimating airline viability give out varying results, and not all airlines that are short of cash are going to go bust.

The model used by BI uses publicly available data on cash in hand and operating expenses to reach estimates on monRead More – Source