[Coronavirus] State aid for (European) airlines ?

[Poiu]

Another consequence: Brussels Airlines requests 200 million euros from the Government to avoid bankruptcy. As Lufthansa in Germany, Swiss in Switzerland and Austrian in Austria...

That confirms the data that LH group is the weakest of the majors, who in turn are way behind Ryan and W!ZZ.
The Belgian State has to be very careful their 200 mio are not flowing to Germany!
As member Inquirer suggested yesterday, maybe this is the moment to let go, keep the money in the bank and start something new and viable once recovery starts, focusing on the post-crisis needs without repeating the errors from the past.

https://centreforaviation.com/analysis/ ... -19-517608

[RoMax]

The relative low liquidity % of LHG has much to do with the fact that they have, compared to the other traditional majors, by far the biggest share of the fleet owned - a strategy that draws away a lot of cash (and that's why many now say LH could raise more cash by doing sale-and-leasebacks on their new a/c deliveries, they've plenty scheduled still for this year). That's still something else than saying they're the weakest of the majors, and you know that too.
With 86% of its fleet owned and 90% of that owned fleet unencumbered, LHG has an immediate and very effective cost saving resulting from grounding its fleet. Once lessors come into play, that's a more complex business.

Referring to the requested state support - well, there isn't any noteworthy airline in the world that will not have requested state support in one way or the other in the coming weeks. The healthier the business was before all this started, the more willing states will be to invest or lend money considering there are much higher chances of survival and the money flowing back to where it came from (again in one way or the other).

[Poiu]

The relative low liquidity % of LHG has much to do with the fact that they have, compared to the other traditional majors, by far the biggest share of the fleet owned - a strategy that draws away a lot of cash (and that's why many now say LH could raise more cash by doing sale-and-leasebacks on their new a/c deliveries, they've plenty scheduled still for this year). That's still something else than saying they're the weakest of the majors, and you know that too.
With 86% of its fleet owned and 90% of that owned fleet unencumbered, LHG has an immediate and very effective cost saving resulting from grounding its fleet.

But the value of that fleet has just been decimated, no leasing company is going to buy it from you for a descent price. The value of the 380s has been reduced to the value of the aluminium. LH Will have to book enormous losses on their fleet.
I’d rather pay 100 million a month on leases and have 7 billion in the bank, than have a fleet of shiny aircraft.
A mountain of cash may allow you to sail through this unprecedented storm, but even that is not a given.
The aviation world is thrown back to the 80ties, it won’t be back to business as usual in three, six or even twelve months. There won’t be money to travel for a loooong time, spending billions and billions of public money on sector where many have been living above their capacity for years is only going to delay the bloodbath.

[Inquirer]

But the value of that fleet has just been decimated, no leasing company is going to buy it from you for a descent price. The value of the 380s has been reduced to the value of the aluminium. LH Will have to book enormous losses on their fleet.

If you'd sell them now, yes, you'd have to book the current price as an exceptional revenue and book that off against the book value used so far (to book an exceptional loss or profit), but if you don't sell (e.g. used as collateral for a loan), you do not re-evalute the book value....

The LHG publishes their financial results tomorrow (unless that will be postponed), but I just went through their latest accounts published and the book value of their owned fleet is about 10BN indeed, which is simply massive indeed. Didn't know that in fact, but their owned fleet is like a bank vault on itself: liquidity is just one part of the equation.

As to who's the weakest: I'd say the weakest are those left without government backing, especially if this drags on for longer than a few weeks? In such a protracted scenario, my bets would be on some of the lowcosts going down, especially those with huge pan-European operations based in relatively small EU countries. I don't see how those governments can back them sufficiently to support their entire EU operations?
For reference, British airlines are requesting a bailout from the UK government to the amount of 4 to 5 BN!

(to the moderator: feel free to move this discussion to the general topic about the impact of the corona virus on aviation, since this conversation went wider than the title of this topic)

[Inquirer]

https://centreforaviation.com/analysis/ ... -19-517608

Interesting overview, but there's quite a meaningful error in their analysis, in that they seem to always use the annual turn over of the airline groups as base reference.
Whereas this is no problem for the low costs as passenger flying is their only activity, it becomes problematic for the others as they also have for instance cargo operations, which are not impacted in the same way.
Using the full annual turn over for the LHG is even more problematic and they are the only one who have a much wider economic activity than just flying passengers/cargo, so obviously this significanly distorts the comparison for them by inadvertedly inflating the denominator, especiallly in the way it is subsequently presented here by CAPA as 'days able to operate without revenues'.
It would be far more meaningful to take just their turn over from flying activities only to come up with a more meaningful comparison to the others, at least if they want to maintain the way they present their results...

[lumumba]

In my opinion also weakest are those left without government backing I don't know for example if Ireland can back Ryanair and Air Lingus.
I'm more optimistic for the UK they have the strength to back up all the airlines I think.
It's a bit like the banks in Island in 2008.

[Poiu]

It's a bit like the banks in Island in 2008.

Indeed, but this time it will be the whole economy, not one sector.
There simply is not enough money and no economical reason to bailout everyone either, there was a massive overcapacity in the market, demand will be significantly less when we come out of the crisis.
I’ll ask the question again: why spent huge amounts of money to bailout companies who were no viable before the crisis and will be even less so after the crisis? Don’t forget it’s the taxpayer who will have to pay for this sooner or later!
It’s exactly the same as life support in Italian hospitals, hard choices have to be made unfortunately.

[lumumba]

It's a bit like the banks in Island in 2008.

Indeed, but this time it will be the whole economy, not one sector.
There simply is not enough money and no economical reason to bailout everyone either, there was a massive overcapacity in the market, demand will be significantly less when we come out of the crisis.
I’ll ask the question again: why spent huge amounts of money to bailout companies who were no viable before the crisis and will be even less so after the crisis? Don’t forget it’s the taxpayer who will have to pay for this sooner or later!
It’s exactly the same as life support in Italian hospitals, hard choices have to be made unfortunately.

In one way you are right don't let money flow to Germany so let's nationalise Brussels Airlines It is a pillar of our economy .
I will not go in details but we need it and sure it's profitable and we need to keep or African experience!
I repeat I my opinion those strategic industries has to be nationalised.
Like energy production etc...

[TLspotting]

Air Belgium is going to request a State aid.

[Poiu]

In one way you are right don't let money flow to Germany so let's nationalise Brussels Airlines It is a pillar of our economy .
I will not go in details but we need it and sure it's profitable and we need to keep or African experience!
I repeat I my opinion those strategic industries has to be nationalised.

Don’t get me wrong, Belgium needs an airline, but this one is sadly broken beyond repair.
They are NOT profitable, never were and probably never will be.
The consolidated loss is 100 million during a period where aviation was booming, despite the fact they got all the Sabena slots for free and sold some for big money, despite 125 million State aid, despite being partially exempted from social security contributions, despite ....
When we come out of this, there will be fierce competition with even more overcapacity, Africa and the US could be in the middle of the corona crisis, so SN’s hub and spoke won’t work and Europe was already loss making with all the connecting passengers...
Sometimes you have to accept your plan doesn’t work and start again from scratch.

[lumumba]

In one way you are right don't let money flow to Germany so let's nationalise Brussels Airlines It is a pillar of our economy .
I will not go in details but we need it and sure it's profitable and we need to keep or African experience!
I repeat I my opinion those strategic industries has to be nationalised.

Don’t get me wrong, Belgium needs an airline, but this one is sadly broken beyond repair.
They are NOT profitable, never were and probably never will be.
The consolidated loss is 100 million during a period where aviation was booming, despite the fact they got all the Sabena slots for free and sold some for big money, despite 125 million State aid, despite being partially exempted from social security contributions, despite ....
When we come out of this, there will be fierce competition with even more overcapacity, Africa and the US could be in the middle of the corona crisis, so SN’s hub and spoke won’t work and Europe was already loss making with all the connecting passengers...
Sometimes you have to accept your plan doesn’t work and start again from scratch.

They where very profitable till the terrorist attacks and they had tough times after the crisis of 2008 like every other airlines.
I remember an interview of a specialist saying that now we have a profitable airline and he was afraid something will happen but could never imagine these terrorist attack!
To rebuild a company like that will cost much more if you start again from scratch and the time it's there you lost the market.
So we NEED to save this airline because we need to keep or strategic advantage in Africa.
I'm sure the politicians are aware of that and will save it like Italy did with Alitalia.

[Poiu]

They where very profitable till the terrorist attacks and they had tough times after the crisis of 2008 like every other airlines.
I remember an interview of a specialist saying that now we have a profitable airline and he was afraid something will happen but could never imagine these terrorist attack!
To rebuild a company like that will cost much more if you start again from scratch and the time it's there you lost the market.
So we NEED to save this airline.

Have a look at the balance sheet Patrice: consolidated loss (not profit!) close to 100 million.
The terrorist attacks was 4 years ago, just before SN had to be saved from bankruptcy by Luftie.
Does Reboot sound a bell? Severe cost saving in order to become profitable, a fleet reduction to around 35 aircraft, this was way before CoVid19.
Future will tell anyhow, I agree with Stij, let’s agree to disagree

[lumumba]

They where very profitable till the terrorist attacks and they had tough times after the crisis of 2008 like every other airlines.
I remember an interview of a specialist saying that now we have a profitable airline and he was afraid something will happen but could never imagine these terrorist attack!
To rebuild a company like that will cost much more if you start again from scratch and the time it's there you lost the market.
So we NEED to save this airline.

Have a look at the balance sheet Patrice: consolidated loss (not profit!) close to 100 million.
Does Reboot sound a bell? Severe cost saving in order to become profitable, a fleet reduction to around 35 aircraft, this was way before CoVid19.
Future will tell anyhow, I agree with Stij, let’s agree to disagree

Fair enough
But this numbers are not crazy anyway....and with Stij it was about Alitalia I think maybe he will be agree with me here.

[Conti764]

In one way you are right don't let money flow to Germany so let's nationalise Brussels Airlines It is a pillar of our economy .
I will not go in details but we need it and sure it's profitable and we need to keep or African experience!
I repeat I my opinion those strategic industries has to be nationalised.

Don’t get me wrong, Belgium needs an airline, but this one is sadly broken beyond repair.
They are NOT profitable, never were and probably never will be.
The consolidated loss is 100 million during a period where aviation was booming, despite the fact they got all the Sabena slots for free and sold some for big money, despite 125 million State aid, despite being partially exempted from social security contributions, despite ....
When we come out of this, there will be fierce competition with even more overcapacity, Africa and the US could be in the middle of the corona crisis, so SN’s hub and spoke won’t work and Europe was already loss making with all the connecting passengers...
Sometimes you have to accept your plan doesn’t work and start again from scratch.

If I remember correctly, SN Brussels Airlines was profitable. In retrosight, taking over VEX and starting Brussels Airlines might be a mistake.

And start from scratch, I don't know... Sabena failed, Brussels Airlines failed,... You'd need an airline group to safely start a new airline... Which one will take the risk these days of investing in a national airline of a country which couldn't get their act together for nearly a hundred years?

[Passenger]

Air Belgium is going to request a State aid.

Won't be easy because Air Belgium's largest shareholder Avia Invest (nv/sa Aviation Investment Holding) hasn't published it's annual account 2018/2019 yet. This had to be done before 26th October 2019.

[sean1982]

The problem with SN is that they chose growth over profitability to fight off the loco's in BRU (which partially worked) but put them on a path of unsustainable growth (which was mentioned here quite a few times). Its a strategy that only works when you have a lot of money in the pocket to start with. Now the taxpayer should rise up and fund that unsustainble growth strategy. I dont think that is a very good plan

[Conti764]

The problem with SN is that they chose growth over profitability to fight off the loco's in BRU (which partially worked) but put them on a path of unsustainable growth (which was mentioned here quite a few times). Its a strategy that only works when you have a lot of money in the pocket to start with. Now the taxpayer should rise up and fund that unsustainble growth strategy. I dont think that is a very good plan

Agreed. But letting it go bankrupt isn't a good idea either.

Take the opportunity to reconsider the businessmodel of SN now the entire aviation is down on its knees due to Covid.

It will mean trimming down SN, no doubt.

[sean1982]

The problem with SN is that they chose growth over profitability to fight off the loco's in BRU (which partially worked) but put them on a path of unsustainable growth (which was mentioned here quite a few times). Its a strategy that only works when you have a lot of money in the pocket to start with. Now the taxpayer should rise up and fund that unsustainble growth strategy. I dont think that is a very good plan

Agreed. But letting it go bankrupt isn't a good idea either.

Take the opportunity to reconsider the businessmodel of SN now the entire aviation is down on its knees due to Covid.

It will mean trimming down SN, no doubt.

That would be a good plan indeed

[Passenger]

The problem with SN is that they chose growth over profitability...

No? They didn't choose for growth instead of profitability. At the contrary: they had hoped that profit would follow their growth.

...which was mentioned here quite a few times.

Indeed. You mentionned it and you repeated it. Because you misquoted Christina Foerster.

[sean1982]

The problem with SN is that they chose growth over profitability...

No? They didn't choose for growth instead of profitability. At the contrary: they had hoped that profit would follow their growth.

...which was mentioned here quite a few times.

Indeed. You mentionned it and you repeated it. Because you misquoted Christina Foerster.

That's where you are wrong because you look at SN with "oogkleppen" as always. They tried the model that Ryanair, easyjet, norwegian, wizzair etc all follow which is to drive out competition by oversaturating the market, underpricing the competition to chase them out and then raise prices again. What they "forgot" is that you need to have serious financial backing to do so (which LH has never been prepared to give). As a result, the figures are what they are and restructering was highly needed and now they want the taxpayer to buy them out ... again. I would say fine but not at the current model. Dont throw away my money to fight off transavia in BRU, but build a sustainable model that attracts customers for more than just being cheap.