COVID-19 relief: Europe’s airlines start getting a lifeline

London: Government bailouts for the European carrier industry are coming to fruition after France and the Netherlands vowed as much as 11 billion euros ($11.9 billion) to spare Air France-KLM, and Germany’s Lufthansa AG heads into a urgent week to work out a comparable measured salvage.

The lifelines to the region’s two biggest carriers by passenger traffic would come after each warned of impending cash crunches and their inability to survive the effects of the coronavirus pandemic without state help. They join a global chorus of distressed airlines that have grounded fleets, furloughed staff and decried the biggest crisis ever to confront the sector.

In the case of Air France-KLM, the French and Dutch governments – the biggest shareholders – set aside a long-simmering conflict over how the group should be run to unveil two, albeit separate, packages of direct loans and guarantees to keep it afloat. For Lufthansa, the road map to salvation is just as politically fraught, involving German Chancellor Angela Merkel and the governments of Austria, Belgium and Switzerland, where it operates so-called national flag carriers.

Sticking to the same script
The willingness by France and likely Germany to shore up their ailing champions comes after the International Air Transport Association repeatedly warned the health crisis could bankrupt half the world’s airlines, with the hit to European carriers expected to reach $89 billion in lost sales. The UK, traditionally less inclined to dole out taxpayer money, is extending loan guarantees to carriers that qualify.

The US is disbursing about $25 billion in payroll assistance, while airlines have also applied for government loans.

“All efforts are devoted to respond to this unprecedented shock,” French Finance Minister Bruno Le Maire and his Dutch counterpart, Wopke Hoekstra, said in a joint statement on the Air France-KLM aid package, adding that they will push the carrier to recover its competitiveness and financial footing.

But has its opponents as well

The move by France will probably serve as further ammunition to Michael O’Leary, the chief executive officer of budget carrier Ryanair Holdings Plc and the region’s most vocal opponent to state aid. He has told Europe’s top antitrust official that the airline may go to court to stop France and other countries from “selectively gifting billions of euros to their inefficient flag carriers”.

The French aid package may also spell more government intervention in the months ahead. The airline said it would consider a share issue to which the French state might participate. This raises the possibility that the direct 3 billion euro-loan extended by France could be transformed into equity, thereby raising its stake.

CEO Ben Smith has vowed to push ahead with a promised revamp, opening the door to voluntary staff departures to cut costs and a further expansion in the low-cost market.