The airline industry is sitting on a financial hotseat as the economic slowdown caused by the coronavirus pandemic burns up cash, but for some carriers it feels like an inferno.
Israeli-flag carrier El Al on Thursday said it has ceased scheduled passenger operations through the end of July and sent most employees home without pay amid a liquidity crisis, while Aeromexico received court approval to use existing resources to pay employees and vendors, and honor ticket purchases and existing agreements with business partners as it seeks to restructure under U.S. bankruptcy protection.
The International Air Transport Association recently projected that the commercial airline industry would lose $84 billion this year, with revenues halved because of the significant decline in passenger travel.
El Al had planned to resume passenger flights Wednesday after a three-month shutdown for health safety reasons, but a dispute with unionized pilots and other workers over concessions and pay forced the company to cancel flights, according to the Jerusalem Post. El Al officials are seeking to secure a rescue package from the Israeli government, without which they warn the company may not survive. A key condition of the assistance is reaching agreement with employees on downsizing measures.
The Israeli carrier and the government are negotiating two bailout options. The first consists of obtaining a $400 million loan, guaranteed by the state, and offering a stock sale to raise $150 million. The second proposal is for a $250 million state-backed loan and offering $150 million in shares, with the state agreeing to purchase all shares not purchased by investors.
The airline has been trying to secure government aid for more than two months.
El Al said on its website that it is continuing to operate cargo-only passenger flights and special passenger charters with Boeing 787 Dreamliner aircraft. The Israel newspaper Maariv reported that the dispute between the pilots and the company was also caused by El Al’s refusal to transfer Boeing 737 pilots to Dreamliner aircraft for cargo and passenger flights.
El Al released first-quarter results showing a $140 million loss compared to a $55 million loss in the same period in 2019, with cash and short-term deposits dwindling to $131 million from $264 million at the start of the year. Revenues fell 25% and in an ironic note, sharply lower fuel prices are actually hurting the company because of hedging contracts that locked in jet fuel prices at higher levels and cost it $56 million for the quarter.
Similar to other airlines, it has taken a series of self-help measures that include placing workers on unpaid leave, canceling capital investment projects, deferring aircraft lease payments and selling spare aircraft engines.
Aeromexico bankruptcy
Meanwhile, Aeromexico cleared the first step of Chapter 11 bankruptcy with court approval to maintain continuing operations without interruption. As announced in its court filing on Monday, the airline is in talks to obtain debtor-in-possession financing as part of its restructuring process.
Debtor-in-possession financing lenders get first priority on a company’s assets in the event of liquidation. Such deals, which must be approved by the court, allow a bankrupt company to remain in business and make payments for goods and services during the reorganization.
“We are committed to taking the necessary measures so that we can operate effectively in this new landscape and be well prepared for a successful future when the COVID-19 pandemic is behind us,” CEO Andrés Conesa said in a statement. “We expect to utilize the Chapter 11 process to strengthen our financial position, obtain new financing and increase our liquidity, and create a sustainable platform to succeed in an uncertain global economy.”
The airline said it expects to double the number of domestic flights in July and quadruple international flights compared to June, joining other airlines that are slowly increasing operations in response to better travel demand.
Aeromexico’s rehabilitation is important to Delta Air Lines too. Under a 3-year-old joint cooperation agreement, the airlines operate hundreds of weekly routes between cities on both sides of the border. They have integrated services, products, airports and sales teams, including online ticket purchases and carry-on baggage policies.
Aeromexico, like El Al and other passenger airlines, has also made extensive use of passenger planes for dedicated cargo customers.
Aeromexico joins Chilean-based LATAM Airlines and Avianca, the top two carriers in Latin America, in seeking U.S. bankruptcy protection. Last week the German government tossed Lufthansa Airlines a safety net worth in excess of $10 billion, while the governments in Hong Kong and Austria have invested in Cathay Pacific and Austrian Airlines, respectively, to prop up those national carriers.
Click here for more FreightWaves stories by Eric Kulisch.
RECOMMENDED READING:
El Al says it might not survive, seeks Israeli bailout
