Are state owned airlines the future? South African, Alitalia, get bailed out again

As privately run airlines – almost regardless of size look into 2021 with increasing alarm, seeing their fortunes and their equity and cash draining away at speeds that are so daunting they’re almost unimaginable, the only place where money is in seemingly endless supply, is government.

Once again, South African Airways has been bailed out to the tune of around US$650m, not because its a viable business – it isn’t – but because the South African Government simply cannot face allowing its flag carrier to sink without trace. National pride is as much responsible for the bailout as any sense the airline might provide a useful, even vaguely profitable service.

Behind all this is the need to keep an airline for national economic development, to keep the well paid jobs inside the economy, to add viability to the countries airports and, quite literally show the country to be an adult in the room, worthy of its own airline.

Alitalia is another example of a national basket case that has taken billions of dollars in aid, been bankrupt more times than you can count one one hand, if not two, and yet, despite finding nobody who wanted to take it on as a going business, is still flying! Over now close on four years of bankruptcy protection, Alitalia has sucked up some US$2 billion in loans, and another $1.5 billion in grants. It isn’t even slightly in a position to pay them back and probably never will.

The European Union is investigating the Italian Government’s role is supporting the airline, pretty much stating that US$1.54 billion is basically illegal state aid and anti-competitive. And even if they do declare Italy guilty, it will probably make no difference whatsoever.

Instead the Italian Government is planning on a rebrand, with the name ITAliana favoured for the nationalised, relaunched airline.

A rebranding awaits…

If you happen to be a leasing company or a manufacturer, the idea of guaranteed payments from a state owned airline is a lot more attractive than a semi-dodgy privately owned company, but the problem with that is that governments tend to look at it from another perspective. To them it means well, ‘we guarantee the payments, how about you charge less as the risk is so much smaller’.

In the busy pre-covid world, that argument would have held little water, but in the covid and post covid world, when literally thousands of aircraft are sitting about unused, getting any money back for anything , even if it barely breaks even, is more attractive than no income at all.

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There seems no doubt that post-Covid, well known airlines are going to go under. Some are too small, some just don’t have enough money. There are clear indications that people are not going to rush back to air travel on the scale necessary until a vaccine isn’t just available, but enough people have had it and know it works to feel safe. Right now that date is around 12 to 18 months away. The majority of airlines just don’t have that long. Those that survive will have to scale back even further than they already have to get through.

And when people do want to travel again, banks and financiers will not be looking at financing airlines on the scale they’ll need to recover quickly. The only place where that much money resides is in government treasuries. In the end, although it’s not always good policy, Government can guarantee loans, offer credit lines and push money into the system, despite its dangerous inflationary risks, because only government can, quite literally, print money, be it paper or digital.

The question is will government be willing to do it? Will it offer the airlines what they need only on the condition they tow the environmental line they failed so miserably at pre-covid, paying nothing but lip service to pollution and Co2 damage?

Some will, but others will not. Only a partnership process will ever work. And then it has to be only for so long, until airlines can stand on their own two feet again, but with the environmental constraints they should have adopted long ago in the forefront of their minds.