To Save or Not to Save – a Corona Question (26. March, Part 1/2)

airline money burn

This Week, there were a lot of webinars, calls, but also news,articles and simply posts on LinkedIn which I’ll try to summarize. The question raised was about why a country shall invest into a bailout for multinational corporations. While IATA and airline associations scream for a bailout, there are some arguments that I find very reasonable against it. Or how to select who to help. And how.

Helping Multinationals?

The first article I’ve read was from The Verge: Don’t bail out the cruise industry. Why should the U.S. (or any European country) provide a bailout for the Cruise Industry? To avoid taxes, they registered themselves in Panama (Carnival), Liberia (Royal Caribbean) or Bermuda (“Norwegian” Cruise Lines). Let those country “safe them”. Or, if you provide them a bailout, do it in clear exchange for commitments. Don’t buy shares. Require them to relocate their business to the country that saves their butts.

That does not only apply to cruise lines, that also applies to airlines. 25% of IAG, the holding company operating British Airways, Iberia, Vueling, Aer Lingus, etc. is owned by Qatar…? Many of the multinationals have “creative tax evasion” in their countries, why should the government now save them? Let the governments where they claim to pay their taxes save them! Ah, but they don’t pay much taxes, so why would they? Sorry, you went outside, now stay in the cold.

Bailout the Dinosaurs?

Brand Dissolution: Who Am I? (Example Lufthansa Group)The news that really angers me are the decision to let FlyBE and Air Italy go bust and on the other side the re-nationalization of money-burner Alitalia. As well as media-reported discussions about countries buying into others.

FlyBE in my opinion had a business case; though I did not understand Virgin’s interest with limited flights to feed them in London, Stobart sure missed on an opportunity. And FlyBe had an important impact to the U.K. regional aviation. Let FlyBE go bust, but now invest into Virgin, which is owned 49% by Delta Airlines? Or invest into a bailout of IAG? Originally the shares were split 55% British Airways and 45% Iberia? Qatar acquiring a 25.1% stake, I assume a 41% stake associated to Britain, 34% Spanish. Who bails out IAG? The Brits with only 41% share? Why should they? If they invest into IAG, 59% go “elsewhere”?

Lufthansa Group is the same thing. Lufthansa, Austrian Airlines, Swiss, Air Dolomiti, Eurowings – aside 50% stakes in Sun Express and the other subsidiaries? How much should Germany pay? Or should the EU provide a bailout? What about Turkey (for Sun Express) or Switzerland, would they take “their part”? Aside, Lufthansa and IAG are very profitable, why should someone bail them out? And else, we have Dutch Air France/KLM, Polish LOT is already state-owned.

“If airlines are given bailouts during times of crisis, it incentivizes the leadership to ignore the risks of a potential crisis. If I’m always going to get a bailout when things get bad, why should I ever maintain any liquidity? Better to buy back the shares instead of invest in projects that might lower my risk in the future.” [George Dalton]

The IATA $ 200 Billion Bailout Demand

IATA crisis impactAre. You. Kidding. Me?

We’ve done a business plan for a large, a huge airline operation from scratch. Beyond airline. With a profit focus and USPs. On “all-in”, we would spend $ 1.8 billion for an airline covering Europe. With a good ROI, even with a crisis like this reflecting a full year setback!

The staged, slow approach would require € 25 million for the launch. But yes, including all the profit centers we planned, the investment would still sum up to the above amount. From investors, as well as from own revenue being reinvested.

KOLIBRI.aeroLet me think. For the sake of competition Four such new airlines in Europe. Sole natural survivors the big players. Lufthansa Group, IAG, Air France/KLM, easyJet, Ryanair. So four times € 1.5 to 2 billion to establish the replacements. € 7 billion. North America is the most profitable market in aviation. So there will be enough survivors. UAE, Russia, China will be saved by their respective governments. Africa, Australia, Central and South America, Southeast Asia, Middle East. Did I forget anyone? Make it 40 airlines to be reestablished from scratch, without inherited problems, sustainable, socially responsible. 30 such airlines covering the world? 50 billion? Better than ever. How does IATA justify a $ 200 billion bailout demand?

Oops – and then I stumble over a report saying IATA expects $ 113 billion drop in airline revenues. 113? 200? Such offsets don’t add any credibility to the demands.

U.S. Airline Bailout

“WASHINGTON/CHICAGO (Reuters) – The U.S. Senate voted late Wednesday 96-0 to give the U.S. aviation industry $58 billion (49.02 billion pounds) in a coronavirus-rescue package, half in the form of grants to cover some 750,000 employees’ paychecks”. (Source)

The interesting issue in this news is loans for operations needs, to be paid back. And grants for paychecks (not repayable). Focusing on the need to keep people employed. But given the need to payback, airlines will consider, if they really need the loans. On the other side, if the recovery takes time – and experts do think so – the U.S. government will face losses from insolvencies.

Helping the Ones in Real Need?

ITB Standbauer (courtesy DW.de)As the U.S. example above shows, it makes sense to focus grants on salaries, securing jobs.

There are a lot of reasons to help airlines, airports, ground handlers. But also many other industries. What about hotels, fair organizers, stand builders? What about teachers, restaurants, cooks, assembly-line workers and other industry staff laid off or fired? Bailout plans must not only look at aviation, this impacts the entire world, all industries. It’s not just aviation…

What about hospitals, nurses, fire fighters, police and all the others in the front row, still working, but at risk of contracting CoVid-19? What about all the grocers and cashiers working in the stores were we get our food in the crisis, the delivery drivers, often working for pocket money, now risking their health for us all?

There was a discussion by economists thinking about “Helicopter Money”. If you pay € 1,000 to all the 80 million people in Germany, that would reflect € 80 billion. But then we must expect a long time until we recover from this quarantine. The German national household is about € 360 billion. Without other expenses, the money would run out after what? 4½ months? If you apply a threshold, you may be able to leave out the real rich, you can reduce by 50% experts wrote this week. Nine months. But what about paying the rent, how much are € 1,000?

Dying CoralsDon’t Forget the Other Crises

Does anyone remember that there is a war in Syria? A locust infestation in Kenia and beyond? Hundreds of thousands of refugees around the world? A global warming, a dying Great Barrier Reef, Fridays for Future?

Summary

At some point someone got to pay the bill. Nicely brought to the point. As I read the message that regional will be the last to go out … and also the first to come back. So investors may reconsider their approach to startup airlines, securing their own market…? Like out KOLIBRI.aero project? But why saving the airlines? When there are so many others? You got to have good reason. Credits, loans are something to consider, given the airline is/was in a generally good shape. Which is true not just for aviation companies, but any companies. But I do see too many cases of players in a good shape, trying to cash in on the situation. And that is something that backfires on the ones in dire need.

Don’t save the dinosaurs. Save the people! And do think beyond aviation.

Food for Thought
Comments welcome!

There will be more posts these days about more topics discussed in those webinars, calls and other feedback. Stay tuned using RSS of follow me on LinkedIn

0 - click to show Jürgen you liked the post