The Impact of COVID-19 Sparks Restructuring Rush Among Global Airlines

Cases of court receivership emerge following asset sales such as layoffs and Ministry of Strategy and Finance
Recovery in demand expected to be slow... "Restructuring scale may increase"

The departure hall of Terminal 1 at Incheon International Airport is quiet on the 29th, ahead of the golden holiday weekend. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yu Je-hoon] As the global aviation industry faces a crisis due to the novel coronavirus infection (COVID-19) pandemic, layoffs and restructuring are occurring one after another across the globe. While countries have begun providing financial support to the aviation industry, insiders and outsiders predict that if the COVID-19 situation prolongs, the scale of restructuring will increase not only domestically but also among global airlines.

According to foreign media and the aviation industry on the 2nd, IAG, the parent company of British Airways (BA), announced on the 28th of last month (local time) that it plans to lay off 12,000 employees. This accounts for one-quarter of IAG's total workforce.

IAG is undertaking layoffs due to a sharp decline in demand and mounting losses caused by COVID-19. In the first quarter alone, IAG posted a loss of 535 million euros (approximately 710 billion KRW), and from the second quarter, when flight suspensions due to COVID-19 became full-scale, even larger losses are expected.

Europe's largest airline, Lufthansa, is also implementing reduced working hours for 80,000 of its 130,000 employees. The company recorded a loss of 1.2 billion euros (approximately 1.5 trillion KRW) in the first quarter and has requested bailout funds amounting to 10 billion euros (approximately 13.2 trillion KRW) from four countries within the European Union (EU), including Germany.

Recently, cases of selling or retiring some of the owned aircraft have also been increasing. United Airlines in the U.S. sold 22 aircraft last month through a sale and lease-back method, and Lufthansa plans to sell a double-digit number of aircraft. An industry insider explained, "Unlike non-core assets such as real estate, selling core assets like aircraft is the airline's last card," adding, "This indicates how difficult the situation is."

Bankruptcy cases have also emerged. Virgin Australia, the second-largest airline in Australia, has entered 'voluntary administration.' This is the first de facto case of a major airline going bankrupt due to COVID-19.

Restructuring is also intensifying domestically. While all airlines have entered paid or unpaid leave, Eastar Jet became the first domestic airline to lay off about 300 employees and is returning aircraft whose lease periods have expired, thereby reducing its fleet size. This means they are using their last card to reduce fixed costs.

The industry also offers a bleak outlook that the scale of restructuring may increase further in the future. It is expected that it may take up to 1 to 2 years for demand, which has shrunk due to COVID-19, to return to normal levels. Alex Cruz, CEO of IAG, who previously implemented restructuring, also stated, "It will take years to recover passenger demand to last year's levels."

A representative from a domestic airline said, "Initially, there was a hopeful prediction that international demand would recover in earnest by the end of the year, but that was merely 'hope,'" adding, "Organizations like the International Air Transport Association (IATA) also see the full recovery of demand occurring after next year, so the difficult period will likely be longer."

This content was produced with the assistance of AI translation services.