These countries are supporting airlines in the midst of the COVID crisis
The financial crisis caused by the coronavirus pandemic has forced a lot of companies to declare themselves into Chapter 7 or Chapter 11 Bankruptcy. Nowadays, the bankruptcy of the companies can have a domino effect on other business that provide or rely economically on them. That is why some governments around the world have proposed to take control of the airlines or pay their debts to avoid the unemployment of thousands of persons.
This was the case, for example, of the German Government when it offered its support to its main airline, Lufthansa. They will pay more than 9 billion dollars since last week the biggest airline on Europe notified that it needed urgent assistance due to the big blow of the pandemic crisis. Now Lufthansa has paid its debts and the government will have initial participation of 20 per cent, which could sum up to 25 per cent as the time passes.
In early April, global air traffic fell 80% from 2019. In late March, the International Air Transport Association (IATA) estimated that half of the airlines could go into bankruptcy in two to three months. And indeed, this crisis has not only affected Lufthansa.
Other governments, in addition to Germany, have also come out to inject resources to prevent them from declaring bankruptcy. Such is the case of Italy, Colombia, the Netherlands, Thailand, France, the Netherlands, the United States, and Brazil.
For now, the airline Alitalia is under the absolute control of the Italian government, since otherwise, the company would have gone bankrupt.
With an investment of at least 3 billion euros, the Italian government will create a new company in early June that will absorb 100% of the airline. The government foresees the constitution of a new company wholly controlled by the Ministry of Economy and Finance or controlled by a company with majority public participation.
The Colombian government is considering buying shares in Avianca, the country’s main airline, according to the minister of Finance, Alberto Carrasquilla.
The Thai government will support a rescue package for Thai Airways International Plc, which envisages its complete restructuring.
Minister Prayut Chan-o-cha said adjusting the airline’s organizational structure and staff would be a challenge, although he did not disclose more details. The majority of the state-owned airline needs a guaranteed loan of 58.1 billion baht by the Ministry of Finance to guarantee its liquidity.
The French state will make loans totalling 7 billion euros to save Air France, although a nationalization is not planned, French Finance Minister Bruno Le Maire reported.
Those loans are broken down into 4,000 million euros in bank loans guaranteed by the state and 3,000 million in direct loans.
The Netherlands plans an aid package of between 2,000 and 4,000 million euros for the airline KLM.
The United States Treasury Department reported that the country’s main airlines reached a preliminary agreement on a 25 billion dollars support package, intended to help firms in the sector.
The pact was reached with a dozen airlines, including the big four – American Airlines, Delta Air Lines, United Airlines and Southwest – who were hesitant to accept government aid for fear of counterparts, as a possible nationalization.
On April 23, the Brazilian Association of Airline Companies announced that at the beginning of May at the latest, economic aid for the sector would be made by the Bank for Economic and Social Development of Brazil, between 470 and 658 million dollars. for LATAM Airlines, which announced in early April a 95% reduction in its passengers.
Government and companies
Still, airlines are not the only companies that have received government support. One of the best-known examples is the revival of General Motors after the 2008 financial crisis. The government paid off its debts and in 2013 withdrew its investment, recovering $ 39.7 billion from the original investment, which was $ 51,000. millions. The same thing happened with Chrysler.
The Mexican government has also voiced its suspicions of the bankruptcy of Mexican airlines, for which the director of the National Chamber of Air Transportation (Canaero), Luis Osorio, reported that they were in talks with the government to develop solutions to the crisis in the sector.
Sources: El Financiero, Investing.com, Reuters, BBC, Investopedia