In today’s update, the US Senate has unanimously passed a multi-billion dollar aid package with specific grants and loans aimed at helping the aviation industry, Meggitt withdraws its dividend, United secures a $500m loan, Embraer reports Q4 loss and Singapore Airlines receives £10m in emergency funding.
The US Senate has unanimously passed a multi-billion package to help industries and workers hit by the demand drop off caused by the coronavirus outbreak, with specific funds put in place for the aviation sector.
The package, which was approved late on Wednesday, includes billions in loans and grants to improve cashflow for airlines and associated aviation businesses. The Coronavirus Aid, Relief, and Economic Security Act (CARES) includes measures to help passenger and cargo airlines, general aviation and both employees and contractors involved in air transport-related operations. The Act will head to the House of Representatives today for approval and then would then go to President Donald Trump to be signed into law.
The Act was passed by the Senate after intense lobbying from aviation sector companies. The industry called for aid to preserve airports, airlines as well as the businesses and MROs which rely upon them. Manufacturer Boeing, already facing difficulties due to the grounding of the Boeing 737, had called for aid worth up to $60 billion.
Congress has earmarked almost $80 billion in loans and grants for aviation segments, $10 billion in airport grants and $100 million set aside for general aviation facilities. A loan pool of $454 billion may also be available to states, municipalities, and businesses in general, including aviation entities. Along with the direct funding, there are numerous other general provisions that will pertain to the industry broadly and small businesses in particular.
Grants must go towards employee salaries and benefits
The CARES Act does not include proposals promoted by environmental groups which sought to tie funding relief to emissions caps or requiring labour representation on airline boards. However, the Act does stipulate that grants provided must go towards employee salaries, benefits and healthcare. Senate will provide “payroll support” of $29 billion for passenger and cargo airlines in addition to the loans and grants and $3 billion for contractors like baggage handlers and catering workers. Companies benefiting from CARES must maintain current employment levels to an extent which is “practicable” through to the end of September 2020. They must also comply with limits on future cuts, as well as stock buy-backs.
Up to $25 billion in grants will be allocated to commercial passenger carriers and related businesses. Other grants include $4 billion for cargo carriers and $3 billion for contractors including ground handling operators and caterers. Another $17 billion has been earmarked for companies with a critical role in maintaining national security, a measure primarily aimed at providing relief for Boeing.
CARES also provides tax relief from the 7.5 percent passenger ticket tax and commercial jet fuel tax through the end of the year.
“Industry made its voice heard”
Following the vote, Naional Business Aviation Association president and CEO Ed Bolen said: “On balance, this bill is helpful for general aviation. The industry clearly made its voice heard in ensuring that the important provisions for general aviation airports, general aviation commercial operators, and other small businesses were considered as this legislation was assembled, and we look forward to the bill’s passage into law.”
In a statement issued after the Senate’s passing of the Act, Aerospace Industries Association (AIA) President and CEO Eric Fanning said: “This comprehensive package prioritises public health and safety, laying out a roadmap for relief and recovery for the American public and US economy. It provides critical tools to help our employees, small businesses, supply chain, and industrial base navigate this crisis.”
“Congress came together to craft this bipartisan package with an urgency that reflects the seriousness of this situation. It is an encouraging signal that our leaders are putting politics aside and America first as we face this unprecedented challenge as a nation. We urge the House to follow the Senate’s lead and pass the bill, so it can move to the President’s desk as soon as possible.”
Even with aid, airlines face an uncertain future
A statement from President and CEO of Airlines for America (A4A) Nicholas E Calio said: “On behalf of 750,000 US airline employees and our nation’s airlines, we applaud the Administration and the US Congress for reaching agreement on bipartisan legislation intended to assist the US airline industry in continuing to make payroll and protect the jobs of hardworking men and women despite devastating impacts to the industry in recent weeks.”
He called for fast release of direct payroll assistance funds to protect jobs but even with state assistance, he said the industry’s future remained “uncertain.” Calio said: “Before this global emergency, US airlines were transporting a record 2.5 million passengers and 58,000 tonnes of cargo each day. Today, carriers are burning through cash as cancellations far outpace new bookings for US carriers, planes are only 10-20 percent full and new bookings are showing 80-90 per cent declines in traffic even as airlines make dramatic cuts in capacity. This week, TSA screened just 454,000 passengers on Sunday; 331,000 on Monday; 279,000 on Tuesday; and 239,000 on Wednesday. This situation is getting worse each day with no end in sight.”
He added: “The impact of government- and business-imposed travel restrictions and public fear have devastated the US airline industry, our employees, travellers and the shipping public. Since the beginning of March, US air carriers – both passenger and cargo – have seen their positions of strong financial health deteriorate at an unprecedented and unsustainable pace. The human, financial and operational impacts are devastating, and the future remains uncertain.”
Calio called on the House of Representatives “to approve this legislation swiftly and send it to the President to begin our country’s economic recovery.”
Meggitt withdraws final 2019 dividend payment
Meggitt PLC has announced it will not be paying a final dividend for 2019 as part of cost-reduction measures taken in response to the coronavirus pandemic.
The engineering company made the announcement following analysis on the impact of COVID-19 on the civil aerospace sector on its business, including latest industry projections on air traffic demand reduction in 2020 along with an associated decrease in demand for original equipment and aftermarket services.
Meggitt has decided to withdraw the recommendation to pay the final dividend of 11.95 pence per share. In a statement issued today, Meggitt said: “This action, together with a series of significant measures to reduce costs and tightly manage cash flow, will further strengthen our financial position and liquidity.”
Meggitt will issue a first quarter trading update on April 23.
United agrees $500 million loan with Goldman Sachs
United Airlines has agreed to borrow $500 million from Goldman Sachs Bank USA in the form of a one-year secured term loan.
The carrier will use the loan for transaction costs, fees and expenses, and for working capital and other general corporate purposes. It has pledged some of its spare parts as collateral for the loan.
The deal was agreed on March 20 and United drew down the loan in two separate disbursements on March 23 and March 24.
United must pay back the principal amount of the term loan in a single installment on the maturity date, which falls on 22 March 2021. United may prepay all or a portion of the term loan from time to time, at par plus accrued and unpaid interest.
Earlier this week, United stepped back plans to cut 95 per cent of capacity, leaving just a skeleton network in place through the coronavirus crisis. It has now reinstated some daily international routes to Europe, Asia and Australia and is operating some additional flights between now and the end of March to repatriated travellers.
Embraer reports fourth quarter loss and suspends guidance
Brazilian plane maker Embraer has said long term effects of the coronavirus pandemic make it impossible to predict the industry’s future.
It has reported a fourth quarter loss for 2019 and suspended guidance for the year.
The manufacturer, the world’s third biggest plane maker after Airbus and Boeing, reported a loss of $209.8 million for the last 3 months of 2019, ending the year with total losses of $322.3 million. The company said it had delivered 89 commercial jets and 109 executive jets last year, in line with annual guidance.
Embraer said predicting how many planes it will deliver this year has become impossible because of the impact of the global pandemic on the airline industry. Embraer has currently suspended production in Brazil as a result of COVID-19.
Singapore Airlines secures £10m in funding
Singapore Airlines Ltd has announced that it has secured up to S$19 billion (£10.9bn) of funding to help it survive the coronavirus crisis and expand afterward.
Singapore Airlines’ majority shareholder, state-fund Temasek Holdings, said it would underwrite the sale of shares and convertible bonds for up to S$15 billion. Singapore’s biggest bank DBS Group Holdings Ltd has also provided a S$4 billion loan.
Temasek International Chief Executive Dilhan Pillay Sandrasegara said: “This transaction will not only tide SIA (Singapore Airlines) over a short term financial liquidity challenge, but will position it for growth beyond the pandemic. The delivery of a new generation aircraft over the next few years will provide better fuel efficiencies as well as meet its capacity expansion strategy.”
SIA has cut capacity by 96 per cent and grounded almost its entire fleet after the Singapore government banned foreign transit passengers.