On average, there is a 12.6% chance that airlines will cancel or postpone scheduled Airbus deliveries.
Having a home government with deep – and open – pockets is becoming a key part of whether an airline will survive the coronavirus pandemic.
According to a Bloomberg News analysis, carriers in jurisdictions where support from above is limited are the most likely to go bankrupt. Using the Z-score method developed by Edward Altman in the 1960s to predict bankruptcies, Bloomberg sifted through available data on listed commercial airlines to identify which ones are most prone to financial disputes.
Compared to the same scan done in March, as the virus just started to spread beyond China to parts of Asia and Europe, quickly cutting international travel, results show a shift clear to the West. At least four of the ten airlines cited at the time had restructured in some way, and all but one were in Asia.
The list is now more populated with carriers in Africa and Latin America, where some have already folded or entered the administration. Representatives of Medview Airlines Plc, Precision Air Services Ltd., Grupo Aeromexico SAB and Gol Linhas Aereas Inteligentes SA did not immediately respond to requests for comment.
AirAsia Group Bhd. And Azul SA declined to comment. Thai Airways International Pcl said a reorganization plan will be proposed to the central bankruptcy court by the end of the year, and noted that the company plans to honor its commitments to all creditors.
A spokesperson for Pakistan International Airlines Corp. said that while the data can show that the airline’s liabilities exceed assets by about four times, “in reality it’s different because those liabilities are spread over sovereign guarantees and the service is provided by the state budget. the situation is not as it shows. We are doing relatively well. “
This does not mean that Asia is out of the woods. AirAsia X Bhd., AirAsia’s long-haul budget arm, is restructuring more than $ 15 billion in debt, and the future of the state-run Malaysia Airlines Bhd remains uncertain. Malaysian Aviation Commission aviation development director Germal Singh recently said the government was unlikely to step in to help.
Burn money
In Latin America, Grupo Aeromexico SAB received a billion dollar bankruptcy loan last month, while Colombia’s largest airline, Avianca Holdings SA, awaits court approval for a $ 2 billion financing plan dollars as it reorganizes under Chapter 11. Mexican President Andres Manuel Lopez Obrador ruled bailouts for large companies, while a Colombian court temporarily blocked a $ 370 million government loan to Avianca in September after a citizen expressed concern about the lack of guarantees.
This contrasts with some parts of Asia. Although Singapore Airlines Ltd. cut its workforce by around 20%, it raised S $ 11 billion ($ 8 billion) through loans and a rights issue backed by public investor Temasek Holdings Pte. Cathay Pacific Airways Ltd., which also cut jobs, raised billions of dollars in a restructuring in June that saw the Hong Kong government secure a stake and two observer seats on its board of administration.
“Many governments have done a good job in providing financial support for aviation jobs,” said International Air Transport Association chief executive Alexandre de Juniac last month. “Where it has not happened – in Latin America for example – we are seeing bankruptcies. Airlines continue to burn cash and this should persist next year. Without a second installment of financial assistance, many airlines will not do this in winter. “
The Z score method uses five variables measuring liquidity, solvency, profitability, indebtedness and recent financial performance. The model has an accuracy rate of between 80% and 90% in the year before insolvency, Altman said in an interview in 2018. A score below 1.8 indicates a risk of bankruptcy within two years, while a figure closer to 3 suggests that a business is on a solid footing.
Among the airlines deemed most vulnerable in March were Virgin Australia Holdings Ltd. and the Thai low cost airline Nok Airlines Pcl. Virgin Australia is currently undergoing a 3.5 billion Australian dollar ($ 2.5 billion) restructuring under the direction of its new owner Bain Capital LP, while Nok Air has applied to the country’s central bankruptcy court to rehabilitate itself.
Cool waves
Alarmingly, the coronavirus outbreak shows few signs of slowing down. Cases worldwide surpass 46 million as new waves sweep across Europe and the United States, sending many cities back into partial lockdown. Deaths are approaching 1.2 million. Several vaccine trials have suffered setbacks and any effective injection may be months away.
IATA, in a new analysis released last week, said total industry revenues next year are expected to drop 46% from $ 838 billion in 2019. Without additional government funding, the Median airline only has 8.5 months of cash at current burn rates.
While some places – in Asia, including Singapore, Hong Kong, Australia and New Zealand – play with travel bubbles, IATA has said full testing for Covid-19 was the only way to postpone the aviation industry on foot. But this idea has yet to gain popularity given the elusiveness of the virus, which typically has a two-week incubation period.
Orders for hundreds of billions of dollars worth of planes with Boeing Co. and Airbus SE are on the line. Both manufacturers face dozens of scheduled deliveries that may be postponed, or worse, canceled.
On average, there is a 12.6% chance that airlines will cancel or postpone planned Airbus deliveries, according to an analysis by Bloomberg Intelligence, which arrived at the number based on the airlines’ five-year probability of default. or their parents. The situation is worse for Boeing, which faces an average risk of 14% for its orders, with American Airlines Group Inc. and United Airlines Holdings Inc. being the most likely to revise their plans.
As many as 900 planes each at Boeing and Airbus come from unidentified customers and failing airlines and receive no risk ratings, BI analysts led by George Ferguson wrote in an Oct. 10 report. Airlines undergoing restructuring, such as Avianca and Latam Airlines Group SA for Airbus, and Aeromexico and Virgin Australia for Boeing, present the greatest risk of cancellation.
“The worst is not behind any airline,” said Akbar Al Baker, managing director of Qatar Airways Ltd., which has already received $ 2 billion in state aid. “Airlines must be supported by their governments to survive.”
(Except for the title, this story was not edited by GalacticGaming staff and is posted from a syndicated feed.)
