Airline cash burn in GFC
Given the current GFC triggered by and attributable to Covid-19, one of the hardest hit sectors is airlines and other players that operate in that value chain i.e. aviation handling service providers. This morning Norwegian air announced its pursuing a $1.2bn debt for equity swap and expects aircraft to be grounded until 2021 - this not an anomally, other airlines are also projecting similar worst case scenarios
My question around this is what constitutes the cash burn that some of the airlines are facing? Interest payments on debt is definitely a major one as are wrong bets on fuel. But what could other drivers of cash burn be given that aircraft are grounded, staff have been laid off or furloughed and operations are at a standstill. Norwegian air's cash burn would be Nkr 300m - 500m a month while IATA predicts that " airlines expected to burn through $61bn of their cash reserves during the second quarter of this year"
You still have a fair amount of staff that needs to be paid. Although this expense is lower, it is still present especially if you have a unionized workforce. Additionally you have aircraft maintenance because planes need to be checked, maintained and repaired even if you've grounded most/all of your fleet. This also includes cleaning and painting. Depending on the airports you're active in you may still need to pay for landing/take off slots otherwise you'll loose them. Since a fair amount of companies predict they'll be able to fly again by the end of June/early July, you really don't want to loose key airport slots before the busy summer period (even if this summer may be less busy than others).
thanks for the input Pharma Guy. One would think that some form of financial leniency may be provided by the airports, but they probably equally need the money and thus are still collecting payment for the slots. I was thinking that they'd defer maintenance to later time unless it coincidentally was scheduled to happen at around this time of the year which is unfortunate timing for the airline
Plane lease payments.
Yup, big one especially for LCCs like Norwegian. Majority of LCC fleet is leased from 3rd-party lessors or hedge funds.
Agreed! the number of leased (encumbered) aircraft is definitely a factor. Airlines that have outright ownership of their fleet are actually using them as guarantees to take on more debt and even selling some of the older aircraft in the secondary market to raise cash. In the event of a default, if the lessors take back the aircraft, what else is left to sell off in order to payback debtholders for an airline?
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