Friday, 9 September 2011

Flag carriers - too big to fail

Like many of the world's banks, flag carriers seem to be regarded as ‘too big to fail’. Since the recession began, airline liberalisation has gone into reverse, with many governments intervening with financial support packages for national airlines. The deals are dressed up as ‘restructuring’, ‘recapitalisation’, ‘refinancing’, and other fancy economic terms, but basically it is all bailouts, flag carriers being propped up by taxpayers’ money. Another fossil fuel intensive industry appears to be sacrosanct, like car manufacturing, which saw massive bailouts for the big three US firms, GM, Ford and Chrysler. The poor suffer the most from the recession, but the airline bailouts main benefit will be to the wealthy, who are the frequent flyers.

China stepped in early as soon as the economic downturn took hold. In December 2008, China Southern, China Eastern and Air China each received $438.66. In 2009, Oman Air received $650 million to help its expansion. Air Canada received $300 million in government loans. Half this sum came from Export Development Canada (EDC), whose raison d’etre was turned on its head in order to prop up the beleaguered airline. EDC’s remit to support exporters and investors in expanding their international business was reconfigured to include domestic business.

South African Airlines and Air Namibia are both beneficiaries of serial bailouts. South African Airways received a cash injection of over $220 million  in 2009 to support its ‘turnaround strategy’. This followed $190 million for recapitalisation in 2006-07 and $230 million in 2007-08 for restructuring. A $10 million bailout for Air Namibia for 2009-10, brought total state support for the carrier to $246 million since 2000. Yet another Air Namibia ‘turnaround strategy’ was agreed in July 2011, to cost $222 million over the following three years.The Nigerian government extended a $3.3 billion to the country’s indebted domestic airlines in May 2010, enabling refinancing of loans for 10-15 years.

In Europe, Malev, Hungary’s national airline, received an emergency cash injection of $26 million to help pay for aircraft leases, and Slovenia’s Adria Airways received support from various government agencies, including $2.8 million from a state owned restructuring company.The Latvian government has intervened in airBaltic, in attempts to ‘stabilise its operations’, since 2009. Now there is to be a further increase in the airline’s share capital with taxpayers’ money, in spite of a gaping budget deficit. AirBaltic made losses of $67.2 million in 2010, and the capital increase is likely to be somewhere  between $97 million - $136 million.

The biggest bailouts for flag carriers have been in Asia. Centre for Asia Pacific Aviation (CAPA) described 2010 as the ‘Year of the Asian Airline Bailout ’, with Japan Airlines, China Eastern Airlines, Air India, Garuda Indonesia, Thai Airways and Malaysia Airlines set to receive over $10 billion in bailouts in the first three months of the year. By this time China Eastern had received $2 billion in 2009 and another £1 billion appeared inevitable by the end of the year.Within days of this report, Japan Airlines was rescued from bankruptcy with $6.6 billion. The support package for Air India, approved in February 2010, was expected to amount to $432 million. In August, the Thai government approved $467 million for Thai Airways.

It is likely several other countries have also bailed out flag carriers, but I have not found a comprehensive international report with all the information. Some countries' national airlines are not as strategically important as governments make out, and it is more a question of keeping up appearances.

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