March 12, 2020 / 3:35 PM / 16 days ago

Breakingviews - Virus-hit airlines can fly without state thrust

The G-EUPH British Airways Airbus A319-131 makes its final approach for landing at Toulouse-Blagnac airport, France, March 20, 2019.

LONDON (Reuters Breakingviews) - Donald Trump just turned airlines’ headache over coronavirus into a full-on migraine. By barring most European fliers from entry in a bid to halt Covid-19’s spread, the U.S. president is hitting operators on both sides of the Atlantic where it hurts most. But airlines now are bigger and fitter than they were after 9/11. Doling out regulatory leeway, rather cash, should be enough to tide them over.

Trump’s restrictions, announced in a sombre Oval Office address on Wednesday, are almost without precedent. After the Sept. 11, 2001 attacks, U.S. airspace was closed for just three days. This ban will last for 30 days, probably more unless there’s a dramatic anti-viral breakthrough. And it’s hard to see the UK and Ireland retaining their exemption for long. Europe’s nearest equivalent is the eruption of Iceland’s Eyjafjallajoekull volcano, which grounded 100,000 flights in 2010.

For most U.S. and European operators, the northern Atlantic is the route to riches, mainly because of the large numbers of big-spending business class travellers. That explains why already-stalling stocks went into a full-on nosedive. British Airways-owner International Consolidated Airlines, which has 29% of its capacity between Europe and North America, shed 11%. Delta Air Lines plunged 14%.

Admittedly, the likes of low-cost operator Norwegian Air Shuttle – the largest non-North American airline serving New York City – are in big trouble, with $6.1 billion of net debt, more than 7 times this year’s forecast EBITDA. But Norwegian is the exception. After a wave of consolidation and strong passenger growth, the industry is coming off the fattest five-year run in its history, with total net profits globally of $161 billion since 2015. Delta alone has handed back more than $10 billion to shareholders in buybacks over that time.

That means airlines’ pleading for state support should be taken with a pinch of salt. IAG is sitting on nearly 5 billion euros of cash. Even perennially wobbly Air France-KLM has 3.7 billion euros in the bank, nearly 90% of this year’s forecast EBITDA. At most, regulatory strictures such as rules requiring landing slots to be forfeited if they aren’t quickly used, could be relaxed. But given the sector has enough to see it through a lean few months, further measures look unnecessary – for now.

Breakingviews

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