The best bet for all airlines at this time is to shutter all operations and go into hibernation. This course of action would require placing staff on unpaid leave, or temporary redundancy, to be re-hired at a later date. At the same time, airlines will ask for and expect assistance from banks and lessors in the form of payment holidays. The knee-jerk reaction from lessors will probably be to refuse requests for rent deferrals but, given the situation, there seems little choice but to capitulate to the demands/needs of clients to help them emerge out of the other side of this storm.
The European Union (EU) is going to relax rules to allow states to save airlines, but will countries lend aid to all home based airlines or will they pick and choose which airlines are to receive aid through loans or other assistance? Will some governments force nationalisation? Will loans be provided only with caveats that staff must remain in fully paid employment – which would mean the size/amount of any such loan(s) would have to be far greater and more immediate. Immediate assistance is exactly what is required on a global level for virtually all airlines now.
While lobbying is underway, airlines should completely shut down and in so doing put all staff on unpaid leave, cancel all maintenance, park aircraft and draw-down on any finance facilities that they may have at their disposal, and start planning the re-setting of operations once the government-led (in many cases) hysteria of COVID-19 has passed.
Ultimately, banks, lessors, OEMs, airports, maintenance providers and all sectors that rely on airlines to survive are going to have to step-up to do their part to help airlines through this period. That means deferring all services and payments, loan repayments, rental payments – the lot. There is simply no alternative but for airlines to cut outgoings and go into hibernation, and that needs to happen before the cash position of airline businesses becomes too diminished. We had weeks and months, now we have hours and days to make a difference.
The aviation sector as a whole, not governments, can make the greatest difference. Once again the aircraft leasing sector should prove itself to be utterly resilient to shocks and indispensable to the functioning of airlines. This crisis should lead/is leading to a rush of sale-leaseback agreements. Sure lessors will have to take the gamble that the airlines in question will still be around after the crisis has passed but they will, in the end, put their faith in the assets, even if the SLB agreement is closed with an airline that fails the asset remains. Investors should take note that this crisis does have a significant silver lining for financially-secured aircraft lessors and the SLB market should right now be on fire. If an airline wants to get a fast cash injection to stave off collapse then look no further than the big global aircraft leasing companies – they are more important now than ever and they will be able to save airlines.
Today, BOC Aviation put its faith in Cathay Pacific with a signed a purchase-and-leaseback for six Boeing 777-300ER aircraft. All six aircraft will be placed on long-term leases with Cathay.
Robert Martin, Managing Director and Chief Executive Officer, BOC Aviation, said: “We are pleased to be supporting Cathay once again, building on a long-term relationship that dates back to 2009. This transaction highlights the way we can bring financing solutions to our customers, on the strength of our balance sheet, our A- credit ratings and our available liquidity.”