U.S. airlines are by no means the same when the temporary dismissal of more than 30,000 workers begins

There is a gap of more than $ 1 trillion in proposals for economic stimulus, a truck full of distrust between the White House and Republican-controlled Senate and the Democratic-controlled House of Representatives, and 30,000 to 5 US airlines A layoff affecting millions of employees is scheduled to begin on Thursday. ..

And as the next surprisingly sad chapter of the US airline Covid-19 story begins to unfold, at least one, perhaps three or more, will go bankrupt or will be forced into a financially and strategically questionable merger. It is more likely to be done. alive.

The new layoffs will take place this summer in addition to eliminating tens of thousands of jobs in the aviation industry, assuming they will not be hampered by last-minute stimulus agreements. Airlines dismiss workers to date in exchange for $ 25 billion in salary protection grants and up to $ 25 billion in government loans under the terms of the first economic stimulus package approved by Congress in March I was forbidden to do it, but used a modest financial incentive. And / or extended travel privileges to induce early retirement, various types of vacations, or voluntary departures for tens of thousands of employees. Ultimately, more than 100,000 employees in the industry can lose their jobs.

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Now, without all these workers, and more importantly, without millions of previous regular travelers, especially expensive business travelers who are too afraid to fly Covid-19, airlines Can’t get things done quickly when demand comes. It makes a roar at some point.

In addition, airlines continue to pay for the loans and leases they used to acquire these planes, and are facing tough decisions about thousands of commercial jets that have been idle since spring or early summer. .. If you can’t make money right away using an airplane, the airline’s bloody balance sheet amortizes them as a total loss, dumps them unnecessarily at the lender’s front door, or sells them as scrap metal. Instruct. Still, airlines’ growing debt piles may be too big for their small source of income to fully cover all the costs associated with planes in storage, as well as planes that continue to operate. ..

“It can take five to six years to return to normal levels of passenger transport and revenue,” as the industry saw in 2019, Hubert Horan said, an independence with about 40 years of experience in the industry. I am a traffic economist. Horan was recently featured in a feature-length version of Alphaville. Alphaville Financial Times.. And the inherent danger of listed companies in the long slogan of returning to a “normal” business situation is that “listed companies cannot survive such cash flow losses for two years.” , It may never return to normal. “

Horan also said that in addition to a total loss of $ 13 billion in the second quarter on a GAAP (generally accepted accounting principle) basis, U.S. carriers blew off approximately $ 15 billion in cash reserves in the same quarter. Said that. You can also incur significant GAAP and cash losses in the quarters ending Wednesday and beyond.

Horan said last month that Southwest Airlines CEO Gerry Kelly was able to double his business from the current very low and disappointing demand levels to return to the break-even point on a cash flow basis. He pointed out that he publicly stated that it was necessary. No such improvement can be found anywhere, Kelly said.

Indeed, it is certain that investors and lenders buying shares in airlines other than the U.S. government are lending money to at least some airlines, suggesting that they disagree with Horan’s analysis. are doing. But if he’s right, it means that one day in the future, business historians may nail this month’s monster layoffs as a turning point for US airlines. It is unfair and exaggerated to suggest that the industry has entered a spiral of death, but layoffs and subsequent changes can force the industry into a competitive structure and its dramatic changes. May lead to. Economic formula. And these changes can be as important as the changes caused by the December 1978 industry deregulation.

On the other hand, in Horan’s view, many foreign airlines face even worse prospects. Because, except in some cases, their success relies much more on long-distance travel abroad. Such flights are nearly suspended due to travel bans, closed borders and strict quarantine requirements around the world. Major “flag” carriers such as British Airways, Lufthansa, Air France and Qantas Australia all serve the relatively small domestic market and rely heavily on international flights to profit. However, they are now effectively blocked from these crucial routes and will probably continue to be blocked for months, and in some cases even a year or two.

And even after the Covid-19 vaccine was approved, enough vaccines were given to 7.8 billion people around the world, lifting national health authorities and political leaders around the world from choking restrictions in these travel industries. It can take quite a long time to convince you to do so.

There have already been many airline failures around the world. Most notable are Virgin Australia, which is out of business, and Avianca and Latin American Airlines, two of the largest airline groups based in Latin America. Both went bankrupt and significantly reduced flight operations while looking for new sources of funding that were previously unsuccessful. Groupo Aeromexico also offers very limited services while proceeding with bankruptcy proceedings filed in the United States.

All three airlines had less than 40 “Financial Heath Ratings” shortly before filing for bankruptcy, according to Rapid Ratings International, which tracks and analyzes the financial position of most listed companies in the world. Currently, the FHRs of all three major US conventional airlines (American Airlines, Delta Air Lines, and United Airlines) are less than 40. This does not mean that all three companies are destined to go bankrupt, but it does mean that they are much more likely to go bankrupt.

The much smaller JetBlue Financial Health Rating is not in the danger zone, but at 43, if you need to borrow more money, or, as expected, suffer a larger GAAP loss and continue to run out of cash reserves, you’re in that range. There is a danger. ..

Southwest Airlines is the largest airline in the country that has boarded but not mileage due to few international services and has an FHR of 72. This is three times the 24 FHRs in the United States. According to Rapid Rating, United’s FHR is 36. Delta has an FHR of 39.

After receiving a $ 7.5 billion loan from the Treasury this week and an additional $ 1.2 billion from Goldman Sachs last week, Americans now have the largest debt burden of the three, about $ 45 billion. .. And with a dramatically reduced combination of staff and fleets, one of these three carriers will generate enough revenue to both pay debt and profit enough to satisfy investors. It is increasingly doubtful that we can do it. And it’s not impossible to attract new sources of liquidity that they are likely to need to stay alive, or additional sources of loans that need to start growing again if travel demand increases significantly. If not, it can be more difficult.

As a result of all these pressures, there is growing question as to whether demand will recover fast enough or fully enough to save carriers with large debts. And it helps to further pinch their already narrow economic escape path.

“For the first time, unlike other (previous) cash crises, many of the disruptions in demand are likely to be permanent,” said Horan, a permanent alternative to at least some business activities. Mentioned the switch of companies to the use of conference calls. They had to travel before. He also said that due to the travel restrictions imposed by many companies and individuals in response to Covid-19, some of the trips they made earlier were actually spent time and money, or the hassle they experienced. It suggested that I learned that it wasn’t worth it. Therefore, he suggested that many such travelers would not travel as much in the future as they did before the pandemic.