Sky Money
Flybe May Not be the Only Airline to Succumb to Covid-19
- Flybe became the first airline casualty of the Covid-19 public health emergency — the carrier ran out of funds and filed for bankruptcy on March 5. It entered the crisis on extremely shaky ground, unable to find a profitable business model even with the financial backing of Virgin Atlantic.
Virgin and other shareholders hoped the U.K. government would step in with support, mindful of the small communities dependent on Flybe’s air service. But no such luck. Surely, Virgin considered putting more of its own money on the line, given Flybe’s strategic importance as a provider of shorthaul traffic feed to Virgin’s longhaul flights. But it ultimately decided against, leaving Flybe to perish.
Other airlines like Scotland’s Loganair promptly stepped in to replace some lost flights.
- Is Flybe’s death just a prelude to additional airline casualties? In Europe alone, the coronavirus is a tank of gasoline spilling onto the already flaming ruins of Alitalia — Italy is now imposing China-like quarantines on large parts of the country. The country’s government is becoming more desperate to sell the zombie airline, offering to separate out some of its unsavory parts. But it’s hard to imagine anyone giving it even cursory consideration right now, especially with Italy being one of the four countries at the epicenter of the Covid crisis (the others are China, Korea, and Iran).
Not all that much better positioned, meanwhile, is Norwegian. Its stock price fell another 35% last week amid concerns that it might need to raise new capital for the fourth time in the past two years, this time in a bear market. The Financial Times, quoting an ABG analyst, said Norwegian might also be close to breaking its financial covenants. These are agreements with lenders spelling trouble if cash, margins, or other metrics fall below certain levels.
- The demand shock hurting the airline industry will likely lead to some mergers as well as bankruptcies. In Korea, a tentative pre-crisis merger deal between the LCCs Jeju Air and EastarJet was finalized last week. More specifically, Jeju will take a 51% stake in its rival, after failing in a bid to invest in the much larger Asiana (itself distressed going into the crisis). The two LCCs will have a combined fleet of about 65 B737-800s and a handful of B737-900ERs, along with two grounded MAXs.
- Philippine Airlines told employees that it lost $208m net last year, calling it the biggest loss in the company’s history. And this for an airline that’s had lots of lousy years. “To survive, our flag carrier needs to find a way to profitability, reduce its debt, and achieve a higher level of competitiveness,” the carrier’s chief operating officer wrote in a letter. It now faces the Covid-19 demand shock, which could prove an existential crisis.