4 ms·

Airlines have large fixed costs and debt to pay. They will not bounce back quickly, or at all. That's why they're asking for a bailout.

CydeWeys 7y ago
Especially the budget carriers, which tend to lease (not own) their planes. They are gonna be hemorrhaging an unfathomable amount of money if they can't get a several month pause on lease payments on their planes.
- gsnedders 7y ago
  To be fair, the leasing companies may well be more inclined to give them a pause on their payments now than normal. If they repossess the aircraft for lack of payments, what other customers do they have for them in the short term?
  - godzillabrennus 7y ago
    None but they can sell them to another group of PE and recoup the Capital their investors are probably clamoring to reclaim in light of the industries issues. Their LP’s would probably take a hit to unlock the cash and get into something more likely to rebound faster.
    - HenryBemis 7y ago
      Selling won't work. If suddenly "many" airlines start selling, the demand won't be that high, and 1) the prices will plummet and 2) there won't be enough buyers so some airlines will be severely damaged (anyway)(better fewer than all I guess).
      - deleted 7y ago
        [deleted]
    - Tuna-Fish 7y ago
      Norwegian and it's subsidiaries currently operate a fleet consisting mostly of 737-800, which were being upgraded to 737 MAX 8, with 3 delivered so far. Some subsidiaries have a few 787's, and they did have 30 A321LR on order. The 787's and the A321LRs are good planes that they could sell, but the 737-800 is an obsolete plane which has a very hard time operating with a profit when competing against the new crop of fuel-efficient narrow bodies. You can't really sell them to anyone for any reasonable amount in the current market. MAX 8's are also hard to get rid off, but for a different reason.
      - toomuchtodo 7y ago
        737-800s will go to the boneyard.
  - CydeWeys 7y ago
    Hopefully that's what ends up happening.
  - pbhjpbhj 7y ago
    Rental relief has to work its way through the whole system, if anyone reneges on it they can bring the whole thing down. The lease company leasing aeroplanes to the airlines might have buildings they lease, hangars maybe. Suppose they spend lots of money re-possessing _all_ their aeroplanes because of non-payment (no one travelling). What now? They have no income from rental (and a heavy delay on people setting up new airlines to cover routes that have no people able to use them yet), they've spent heavily to re-possess, and now they also can't pay their own overheads. So, they too will go out of business, surely. Then the company they got loans from has a repayment deficit, they can repossess the leasing companies assets, and pay to store them, and try to sell them ... but they're going to be getting pennies-on-the-dollar (who wants to pay to store aeroplanes they can't fly for profit?). Duplicate that over the other loans they called in in other industries; now they're burning cash as well?? If the top of the tree, the banks or capitalists, can hold out then they stand to make a tidy packet when markets rebuoy but even then there'll be a huge lag if they laid off multiple tiers of companies. Either we all have to agree not to force each other to close down, or we all do each other over. It's not pretty. I'm wondering what happened in 1918 with "Spanish Flu", people instigated social distancing then - closing down schools and churches - so presumably there were businesses too that couldn't pay their rents? I imagine things were less severe because more businesses would own their resources, and would be part of communities that would collapse if they called in what they were owed.
oh_sigh 7y ago
What does a world with non bounced back airlines look like? No flights? Cheap flights? Expensive flights?
- core-questions 7y ago
  It depends how essential flights are deemed to be. If people want them and a market exists, fares will be very expensive at first and then eventually normalize as demand increases and capacity scales back up. Since all of the infrastructure already exists it shouldn't take that long to scale back up.
- kshacker 7y ago
  I do not know about that but hopefully they realize they can not pack passengers any more for the fear or spreading disease and move back at least to how seating used to be a couple of decades back ... more space rather than less.
  - kristofferR 7y ago
    The centimeters we're speaking of has no effect at all at how quickly disease spreads, the way the air circulates is more important than your leg room. Seating like we used to have a few decades back is available. It costs about the same as it used to. People seem to forget how expensive air travel were back in the days, no wonder it was more luxurious.
  - Normal_gaussian 7y ago
    I haven't seen anywhere suggesting that the transmission vectors between passengers are a major cause of the growth into a pandemic - even if that was the case, I doubt a once in 50 year disease is cause for them to change to a less profitable seating setup the other 49.
    - londons_explore 7y ago
      There are lots of cases of diseases spreading from one plane passenger to another. That's part of the reason the airline requires you to sit in allocated seats - so they can notify the people sitting in neighbouring seats if you have a notifiable disease. My personal hypothesis is the low pressure ultra-low humidity air in planes dries out mucus membranes in the nose and throat making it more likely for airborne things to get in.
anovikov 7y ago
But ok, they just go bankrupt right? Leasing companies repossess their planes, and that's it. Then new legal entities are established and planes are leased back to them, and they are debt free. It's not like anyone is going to scrap the planes, or shoot the pilots.
- angry_octet 7y ago
  Yes, investors have to accept the loss, not the govt. A new budget carrier will arise in a few months, buy any IP they need from the liquidators for a small fee, and re-hire 50% of the old staff straight away. Provided COVID-19 doesn't get going again next winter.
  - frank2 7y ago
    I am pretty sure COVID will strike again next winter.
    - pbhjpbhj 7y ago
      I'd say "will still be active". Look at MERS, SARS, H1N1, ..., active for much longer than I'd imagined; AFAICT in those cases the crises left the news long before they stopped being a widescale medical issue that needed special interventions. MERS peaked in 2014 (and 2015, 2016, ...), but there are still cases.
  - anovikov 7y ago
    What happens if they do not "accept" the loss? It will just happen to them. They will lose cash, that's it.
    - kmonsen 7y ago
      When the stock get wiped out anyone holding the stock will loose their money. Those people are called investors and will loose anything they invested. They do not have a choice. They bought a stock for something, and now it is worth 0 and will never be worth anything ever again. There are of course other options in restructuring etc, but investors can always face the possibility of loosing all the money they have invested.
ken 7y ago
Isn’t that true of almost every business? Unless you’re all-remote and have only gig workers, you have to pay for the rent and upkeep of your facilities and resources.
- missedthecue 7y ago
  Airlines are particularly capital intensive
  - pbhjpbhj 7y ago
    So they're the extreme, but the general point stands, no?
hogFeast 7y ago
They don't. Some have debt, most of the ones where I am do not though. You have depreciation, which is non-cash. Even staff costs have a variable component based on hours flown, although (where I am) they still have to pay a base salary. (Btw, just generally...most airlines are run very efficiently. They are huge enterprises deploying these big expensive assets, and they run with very little capital. Obviously, this does vary by strategy but the low-cost airlines usually turn their capital more than once...just looking at $LUV...134m passengers, 747 planes, $22bn revenue on invested capital of $10-12bn...just based on a quick calc) Unsurprisingly, if you are an airline company and you stop running flights then you don't have many costs. The issue airlines have is labour law. I think we will see countries like the Nordics manage this better (SAS appears to have been able to furlough 90% of their staff) because it is easier to lay off staff temporarily (I believe this is in sector-wide bargaining agreements). In the UK, as a counter-example, it is much harder because there are no sector-wide agreements so temporary lay-off needs to be in your contract. Maybe airlines have this, I don't know but it seems like some don't see what the option is between bailout to pay staff their base salary or layoffs (and btw, airlines could just sack everyone which would end up being massively costly to the rest of us). We aren't bailing out the airlines, we are bailing out the staff.

CydeWeys 7y ago

Especially the budget carriers, which tend to lease (not own) their planes. They are gonna be hemorrhaging an unfathomable amount of money if they can't get a several month pause on lease payments on their planes.

gsnedders 7y ago
To be fair, the leasing companies may well be more inclined to give them a pause on their payments now than normal. If they repossess the aircraft for lack of payments, what other customers do they have for them in the short term?
- godzillabrennus 7y ago
  None but they can sell them to another group of PE and recoup the Capital their investors are probably clamoring to reclaim in light of the industries issues. Their LP’s would probably take a hit to unlock the cash and get into something more likely to rebound faster.
  - HenryBemis 7y ago
    Selling won't work. If suddenly "many" airlines start selling, the demand won't be that high, and 1) the prices will plummet and 2) there won't be enough buyers so some airlines will be severely damaged (anyway)(better fewer than all I guess).
    - deleted 7y ago
      [deleted]
  - Tuna-Fish 7y ago
    Norwegian and it's subsidiaries currently operate a fleet consisting mostly of 737-800, which were being upgraded to 737 MAX 8, with 3 delivered so far. Some subsidiaries have a few 787's, and they did have 30 A321LR on order. The 787's and the A321LRs are good planes that they could sell, but the 737-800 is an obsolete plane which has a very hard time operating with a profit when competing against the new crop of fuel-efficient narrow bodies. You can't really sell them to anyone for any reasonable amount in the current market. MAX 8's are also hard to get rid off, but for a different reason.
    - toomuchtodo 7y ago
      737-800s will go to the boneyard.
- CydeWeys 7y ago
  Hopefully that's what ends up happening.
- pbhjpbhj 7y ago
  Rental relief has to work its way through the whole system, if anyone reneges on it they can bring the whole thing down. The lease company leasing aeroplanes to the airlines might have buildings they lease, hangars maybe. Suppose they spend lots of money re-possessing _all_ their aeroplanes because of non-payment (no one travelling). What now? They have no income from rental (and a heavy delay on people setting up new airlines to cover routes that have no people able to use them yet), they've spent heavily to re-possess, and now they also can't pay their own overheads. So, they too will go out of business, surely. Then the company they got loans from has a repayment deficit, they can repossess the leasing companies assets, and pay to store them, and try to sell them ... but they're going to be getting pennies-on-the-dollar (who wants to pay to store aeroplanes they can't fly for profit?). Duplicate that over the other loans they called in in other industries; now they're burning cash as well?? If the top of the tree, the banks or capitalists, can hold out then they stand to make a tidy packet when markets rebuoy but even then there'll be a huge lag if they laid off multiple tiers of companies. Either we all have to agree not to force each other to close down, or we all do each other over. It's not pretty. I'm wondering what happened in 1918 with "Spanish Flu", people instigated social distancing then - closing down schools and churches - so presumably there were businesses too that couldn't pay their rents? I imagine things were less severe because more businesses would own their resources, and would be part of communities that would collapse if they called in what they were owed.

oh_sigh 7y ago

What does a world with non bounced back airlines look like? No flights? Cheap flights? Expensive flights?

core-questions 7y ago
It depends how essential flights are deemed to be. If people want them and a market exists, fares will be very expensive at first and then eventually normalize as demand increases and capacity scales back up. Since all of the infrastructure already exists it shouldn't take that long to scale back up.
kshacker 7y ago
I do not know about that but hopefully they realize they can not pack passengers any more for the fear or spreading disease and move back at least to how seating used to be a couple of decades back ... more space rather than less.
- kristofferR 7y ago
  The centimeters we're speaking of has no effect at all at how quickly disease spreads, the way the air circulates is more important than your leg room. Seating like we used to have a few decades back is available. It costs about the same as it used to. People seem to forget how expensive air travel were back in the days, no wonder it was more luxurious.
- Normal_gaussian 7y ago
  I haven't seen anywhere suggesting that the transmission vectors between passengers are a major cause of the growth into a pandemic - even if that was the case, I doubt a once in 50 year disease is cause for them to change to a less profitable seating setup the other 49.
  - londons_explore 7y ago
    There are lots of cases of diseases spreading from one plane passenger to another. That's part of the reason the airline requires you to sit in allocated seats - so they can notify the people sitting in neighbouring seats if you have a notifiable disease. My personal hypothesis is the low pressure ultra-low humidity air in planes dries out mucus membranes in the nose and throat making it more likely for airborne things to get in.

anovikov 7y ago

But ok, they just go bankrupt right? Leasing companies repossess their planes, and that's it. Then new legal entities are established and planes are leased back to them, and they are debt free. It's not like anyone is going to scrap the planes, or shoot the pilots.

angry_octet 7y ago
Yes, investors have to accept the loss, not the govt. A new budget carrier will arise in a few months, buy any IP they need from the liquidators for a small fee, and re-hire 50% of the old staff straight away. Provided COVID-19 doesn't get going again next winter.
- frank2 7y ago
  I am pretty sure COVID will strike again next winter.
  - pbhjpbhj 7y ago
    I'd say "will still be active". Look at MERS, SARS, H1N1, ..., active for much longer than I'd imagined; AFAICT in those cases the crises left the news long before they stopped being a widescale medical issue that needed special interventions. MERS peaked in 2014 (and 2015, 2016, ...), but there are still cases.
- anovikov 7y ago
  What happens if they do not "accept" the loss? It will just happen to them. They will lose cash, that's it.
  - kmonsen 7y ago
    When the stock get wiped out anyone holding the stock will loose their money. Those people are called investors and will loose anything they invested. They do not have a choice. They bought a stock for something, and now it is worth 0 and will never be worth anything ever again. There are of course other options in restructuring etc, but investors can always face the possibility of loosing all the money they have invested.

ken 7y ago

Isn’t that true of almost every business? Unless you’re all-remote and have only gig workers, you have to pay for the rent and upkeep of your facilities and resources.

missedthecue 7y ago
Airlines are particularly capital intensive
- pbhjpbhj 7y ago
  So they're the extreme, but the general point stands, no?

hogFeast 7y ago

They don't. Some have debt, most of the ones where I am do not though. You have depreciation, which is non-cash. Even staff costs have a variable component based on hours flown, although (where I am) they still have to pay a base salary. (Btw, just generally...most airlines are run very efficiently. They are huge enterprises deploying these big expensive assets, and they run with very little capital. Obviously, this does vary by strategy but the low-cost airlines usually turn their capital more than once...just looking at $LUV...134m passengers, 747 planes, $22bn revenue on invested capital of $10-12bn...just based on a quick calc) Unsurprisingly, if you are an airline company and you stop running flights then you don't have many costs. The issue airlines have is labour law. I think we will see countries like the Nordics manage this better (SAS appears to have been able to furlough 90% of their staff) because it is easier to lay off staff temporarily (I believe this is in sector-wide bargaining agreements). In the UK, as a counter-example, it is much harder because there are no sector-wide agreements so temporary lay-off needs to be in your contract. Maybe airlines have this, I don't know but it seems like some don't see what the option is between bailout to pay staff their base salary or layoffs (and btw, airlines could just sack everyone which would end up being massively costly to the rest of us). We aren't bailing out the airlines, we are bailing out the staff.