US airlines brace for negative cash balances and eventual bankruptcy

The Aerospace Industries Association has decided to seek government support to prevent the airlines from going belly up

Industry trade group Airlines for America has said US airlines are staring down the possibility of negative cash balances and eventual bankruptcy by the time the world emerges from the severest impact of the coronavirus pandemic. Ahead of a crucial hearing at the Senate Commerce Committee, the industry body said airlines are burning more than $10 billion in cash a month to stay afloat.

"The U.S. airline industry will emerge from this crisis a mere shadow of what it was just three short months ago," Nicholas Calio, chief executive of Airlines for America, will tell the Senate panel, Reuters reported citing relevant documents. More than 3,000 aircraft -- which is a 50 percent of the fleet -- of the airlines in the group have been grounded, the body said. And airlines are operating with an average of just 17 passengers per domestic flight and 29 passengers per international flight.

United ceo replacement
United Airlines

Lufthansa in bailout talks

Booking cancellations are another problem, the airlines say, adding that if they have to refund all tickets, they would soon face negative cash balances that will lead to bankruptcy.

Meanwhile, the Aerospace Industries Association has decided to seek government support to prevent the airlines from going belly up. Eric Fanning, who heads the group, said it will approach Congress for "temporary and targeted assistance for the ailing aviation manufacturing sector," the news agency added.

In Europe, German carrier Lufthansa is in the midst of negotiations for a 10 billion euro bailout. The leading European carrier, which has grounded 700 aircraft, said it is bleeding 1 million euros ($1.1 million) in liquidity reserves every hour. The airline also said on Tuesday that it is holding back distribution of $323 million in dividend for 2019.

American Airlines
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In the US, United Airlines has said around 30 percent jobs in the management and administrative ranks of the carrier will have been cut by October 2020. United and other major US airlines have accepted the federal government's financial aid that prevents them from cutting jobs until September.

More job cuts across industry

Last week, legendary investor Warren Buffett said he was shedding airline shares. His holding company Berkshire Hathaway sold all shares in four large American airlines after suffering a record $50 billion net loss in the first quarter. Buffett, who issued a dire warning to the global airline industry, had held 11 percent stake in Delta Air Lines, 10 percent in American Airlines, 10 percent in Southwest Airlines and 9 percent in United Airlines.

In other distress news from the airline industry, plane maker Boeing said last week it would see a whopping 16,000 jobs go by the end of 2020. While GE Aviation is bracing for 13,000 job cuts, airplane supplier Spirit AeroSystems Holdings said it was cutting 1,450 jobs.

Southwest Airlines
Southwest Airlines Pixabay

According to the International Air Transport Association (IATA), the global airline industry may lose as much as $314 billion in passenger revenues due to the Covid-19 crisis. The IATA had predicted a revenue hit of only $130 billion in March, but raised the estimated losses multi-fold a month later. Citing global numbers, Statista reported that scheduled flights dropped by 66 percent in the week of April 20, 2020, compared with the same week a year ago.

Related topics : Coronavirus