Governments offer financial lifelines to airlines, at a price

SYDNEY/WASHINGTON (Reuters) – Shattered airlines were left counting the cost of government support as politicians in the United States and New Zealand set out conditions for bailouts needed to absorb the shock of coronavirus.

Conditions include provisions that loans may convert to government equity stakes, with Air New Zealand Ltd’s (AIR.NZ) bailout also dependent on suspending its dividend and paying interest rates of 7% to 9%, while U.S. airlines cannot increase executive pay or providing “golden parachutes” for two years.

New Zealand on Friday offered its national carrier a NZ$900 million ($510 million) lifeline, which Finance Minister Grant Robertson said would help it survive after the government banned all non-resident arrivals to the country.

Under the $58 billion U.S. proposal for passenger and cargo carriers, the U.S. Treasury Department could receive warrants, stock options, or stock as a condition of government assistance in order for the government to participate in gains and be compensated for risks.

“We are not bailing out the airlines or other industries – period,” U.S. Senate Appropriations Committee Chairman Richard Shelby said in a statement. “Instead, we are allowing the Treasury Secretary to make or guarantee collateralized loans to industries whose operations the coronavirus outbreak has jeopardised.”

Norway will back airlines with credit guarantees worth up to 6 billion Norwegian crowns ($537 million), half of it to Norwegian Air Shuttle ASA (NWC.OL), but conditions include raising some money from commercial lenders and the equity market.

The International Air Transport Association (IATA) has forecast the industry will need up to $200 billion of state support, piling pressure on governments facing demands from all quarters and a rapid worsening in public finances as economies slump.

“The longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid,” Carsten Spohr, chief executive of Germany’s Lufthansa said on Thursday.

Lufthansa, which has idled 700 of its 763 aircraft, has already held talks with the German government on providing liquidity, including through special loans from state development bank KfW.

Former U.N. ambassador Nikki Haley resigned from Boeing Co’s (BA.N) board on Thursday after opposing its bid for $60 billion in government financial assistance for the U.S. aviation manufacturing industry.

Even with financial assistance, airlines around the world are placing thousands of workers on unpaid leave, deepening the shocks to local economies.

The only bright spot for the industry is the cargo market. Passenger planes normally carry about half the world’s air cargo in their bellies, with the remainder hauled in dedicated freighter planes.

The collapse in passenger flights has tightened the cargo market, leading some carriers to fly planes devoid of passengers and baggage but with cargo in their bellies.

American Airlines Group Inc (AAL.O) said on Thursday it would use some of its grounded Boeing 777 passenger jets to move cargo between the United States and Europe, in its first scheduled cargo-only flights since 1984 when it retired the last of its 747 freighters.

Normally 65% of cargo capacity from mainland Europe and the Britain to the United States is belly space on passenger aircraft, according to Seabury Consulting.

“Space is available, but at premium rates and without transit time guarantees,” logistics company Agility said on its website.

In the Asia-Pacific region, Qantas Airways Ltd (QAN.AX), Cathay Pacific Airways Ltd (0293.HK), Korean Air Lines Co Ltd (003490.KS) are also operating some flights with empty seats but bellies full of cargo.