US airlines get $25 billion bailout, European airlines face a new world order

The US airlines have accepted a deal where they’ll individually accept tranches of a $25 billion bailout.

In general, 30% of the amount is a loan and repayable, the rest is grants and cash to support pay and jobs.

It’s a huge amount of money and the airlines weren’t overly happy about the idea of repaying the 30%.

The US airline industry is overwhelmingly a domestic business, with few effective means of reaching such a large geographic area, road transport isn’t viable over great distances. Rail connections in the US are relatively minor compared to Europe. Aviation is key to economic activity in the country.

It’s that reason that has enabled the Federal government to justify such a sizeable bailout, and few would disagree it was needed.

Others argue that the airlines should have been made to offer better support to customers and have many of their predatory practices curtailed. Especially when it comes to baggage and pricing of tickets.

Little has been promised by the airlines and they have ten years to repay the loan element of the support and low interest rates. They’ve also been allowed to repay the amount far sooner if they choose to.

Quite what happens next for the airlines is another matter. All of them want to fly again but they have no idea what their market will be, how fast the economy will bounce back, and which areas will come back first. Business travel is likely to be heavily depressed, and leisure travel will drop off a cliff until unemployment starts to be reduced.

Some estimates are seeing US unemployment being as high as 10-12% even by September-November.

In Europe the airlines are looking at serious issues that will be deeply uncomfortable for many.

The Lufthansa Group sits at the centre of much of Europe’s aviation. At least two of its subsidiaries realistically have no future and should be allowed to fade away. Austrian and Brussels airlines simply make no real sense.

Condor is facing a bleak future now that LOT Polish who we’re going to buy it, have pulled out.

TAP AirPortugal is not realistically large enough or diverse enough to survive in Europe. Scandinavia doesn’t need two airlines in SAS and Norwegian, and the later is virtually moribund right now.

Alitalia is a basket case that should have been allowed to die.

But politics and national pride may prevent the reality of the situation from being allowed to take hold and economic Darwinism – the extinction of the weakest – is something national governments may be unwilling to allow to proceed.

Portugal still owns a large part of TAP, Italy recently nationalised Alitalia and Austria’s right wing government has squirmed at the idea of loosing its weak flag carrier owned by the Lufthansa Group. Poland still owns most of LOT, and it goes on. Few people see that governments still own large parts of airlines around the continent. Even if they don’t, the idea of loosing a flag carrier is painful.

So how inside the EU is it going to be possible to save them all when there isn’t the market for their services? It might not be long before we find out.