Airlines Struggle for Government Aid Amidst Prolonged COVID-19 Crisis

  • May 11, 2020 AEST
  • Team Kalkine
Airlines Struggle for Government Aid Amidst Prolonged COVID-19 Crisis

Global economic activity remains sluggish, as the world continues to struggle with containing the spread of 2019 Novel Coronavirus (2019-nCov) pandemic. Various countries are now strategizing to gradually open up their economies by eliminating social distancing restrictions in certain regions.

Millions of people have already filed for unemployment claims and governments around the world have released stimulus packages in billions and trillions to uplift their economies and meet the challenges being presented by the transition that is required for restarting businesses and bringing back employees.

Global Snapshot: COVID-19 Numbers and Jobless Claims: Must Read

Demand for services has decreased substantially in industries including hospitality and aviation. Especially, pressure has been extremely high on Australia’s aviation industry with domestic and international travel absolutely restricted by the government around the world and as human population remain quarantined at home to curb the virus spread.

Also, Read: Aviation doom deepens as investors embrace realistic facts

To deal with crisis requires resilience, innovation, strong cash position, long-term orientation as well as a good credit rating as the lenders/banks feel hesitant and are even falling short of lending money.

Emirates Subsidiary Reviewing Australian Operations Upon Exclusion from Jobkeeper

Governments around the world and in Australia have announced various relief packages to keep their economies afloat in these uncertain times, as unemployment rose sharply causing business disruptions for important parts of the economy.

Around the end of March 2020, the Australian government had rolled out the $ 130 billion JobKeeper Payment program, a type of wage subsidy package, to support the Australian citizens working in those sectors largely impacted by the COVID-19 outbreak and to help businesses with funds for paying their employees. However, the companies owned by foreign governments were excluded from this scheme.

As a result, dnata (Dubai National Air Transport Association), an airport services subsidiary of Dubai's Emirates Group has threatened to review its operations in the country, as it has been denied of the government’s scheme to save jobs. dnata is wholly owned by the United Arab Emirates government and is engaged in the provision of aircraft ground handling, cargo, travel, flight catering and hospitality services across five continents in different strategic locations. The Company is now reconsidering the medium to long-term viability of its different operations in Australia and threatening to stand down approximately 4.5k Australian staff after its exclusion from the federal government’s funding support scheme.

The Emirates subsidiary has also claimed that the Australian Taxation Office (ATO), which has administered the JobKeeper payment, whereby eligible employers would be assisted to pay their eligible employee's salary or wages of at least $ 1,500 (before tax) per fortnight, had previously signalled that dnata was eligible for this scheme and later denied this provision.

Despite Australian government’s best efforts to help the people and businesses, this came as a disappointment to the Emirati company, which employs as high as 6,000 Australians and its contribution to the local economy is also significant. Thus, dnata is now urging the government to not overlook its position in the Australian aviation industry, which is currently facing large turbulence. The case for the company includes investment of nearly $ 300 million over the last 13 years across people, technologies and infrastructure in Australia.

Virgin Australia Goes into Voluntary Administration; Determined to Fly

Meanwhile, Australia-based Virgin Australia Holdings Limited (ASX: VAH) announced voluntary administration around late-April 2020 with the agenda being recapitalisation of its business and thereby ensuring a stronger financial resurgence, as things get to normal post the COVID-19 crisis. The decision came in when the Group’s continued efforts to seek financial assistance, to help VAH through the unprecedented crisis, from State and Federal Governments, did not materialise.

Notwithstanding the impact of ongoing turbulence, Virgin Australia is resolute to play a crucial role in uplifting the Australian economy to its normal after the end of COVID-19 crisis, by offering access to competitive and high-quality air travel for the people of the country. In line with that, the Group continues to operate its international and domestic flights that are on schedule to expedite transportation of people and essential workers, and maintenance of key freight corridors.

In the span of last 20 years, the Group has successfully employed  over 10,000 people directly and around 6,000 indirectly, while operating flights to 41 destinations with more than 10 million members of its Velocity loyalty program, and contributing ~$ 11 billion to the Australian economy per annuum.

Interesting Read: The Story of Virgin Australia - Cash-Strapped Airline Struggling Hard to Revive

Global Aviation Industry Under Pressure

Obstacles being faced by the aviation industry are not just restricted to Australia; international players have not been spared either. Due to the collapse in demand, the Flag carrier Singapore Airlines (SIA) has indicated the city-state’s stock exchange that SIA Group, which includes SIA, regional carrier SilkAir and budget carrier Scoot, expects to report its first-ever net loss for the year FY19-20 in the final quarter as the prior quarters returned strong financials. Although the company is working to conserve cash by deferring discretionary expenditures and reducing salaries, yet operating cashflows would be in negative until June 2020 along with large hedging losses.

Recently, the Australian government announced to have executed agreements with Qantas Airways Limited (ASX: QAN) and Singapore Airlines (SIA) to transport food to Asian markets, under the AUD 1 billion government fund to support regions, communities and industry sectors affected by COVID-19. Qantas Airways operates Qantas (full-service carrier), Jetstar (low-cost carrier), Qantas Frequent Flyer and Qantas Freight. As per the agreement, Qantas Airways will carry seafood and other produce from north of Australia to Hong Kong from Queensland state, while Singapore Airlines will fly from South Australia.

In fact, many of the airlines are using their passenger fleets as temporary cargo carriers due to the COVID-19 crisis.  

Coronavirus pandemic has indeed shaken the world and the extent of destruction would depend on the length and duration of the virus. Airline industry, globally, is going through a tough time and it seems financial assistance is the need of hour for leading players to emerge in a stronger financial position on the other side of the crisis.  

Do Read: Are all Airline Stocks in a dumping zone post Warren Buffet's take on the Sector?


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