Worst-hit airlines badly need the cash that Latin America lacks

It’s hard to spot a plane these days in the skies over Latin America. Unfortunately for the region’s carriers, concrete signs of a rescue package look just as scarce.

A fresh round of flight cuts were announced Tuesday, reducing travel on the continent to a trickle and raising the pressure on governments to help prop up the ailing industry. Brazil’s Gol Linhas Aereas Inteligentes SA said it will suspend all international travel and limit domestic flights to 50 a day through May 3. Azul SA’s capacity is cut by 90% of its normal flow through the end of April, and Avianca Holdings SA suspended the last of its passenger flights altogether. A day earlier, Sky Airline SA and Copa Holdings SA temporarily halted operations.

As the world goes into lockdown to slow the spread of the coronavirus, the airline industry has been particularly hard hit—even more so in Latin America, where top carriers’ stocks have tumbled beyond global peers. JPMorgan Chase & Co. analysts give the weakest of the regional bunch (Avianca) just three months before it goes bust if all flights stay halted; even the cash-healthiest of the group (Copa and Azul) would only have an estimated six to 10 months under those circumstances.

“The industry will be in zombie mode at least until May,” said Luis Felipe de Oliveira, executive director of the Latin American & Caribbean Air Transport Association. “Governments need to understand it will be very difficult to recover even after the crisis.”

But while just about everyone agrees it will be up to governments to help save the industry, there’s a disconnect between what’s needed and what nations can—or even want to—do. Brazil and Colombia seem willing to step up; Mexico and Chile don’t. Latin America was already the lowest-growth major region in the world and budgets were stretched thin even before oil collapsed and the coronavirus crippled the global economy.

Latin America’s biggest carriers—Latam Airlines Group SA, Gol, Azul and Avianca—have seen their stocks tumble an average of 76% in local currency terms since the end of January. That’s more than all 23 members in the Bloomberg World Airlines Index. The global gauge is down 46% in the period. Bonds issued by all the major carriers are trading in distressed territory.

The region’s airlines face about $15 billion in lost passenger revenue this year, according to an International Air Transport Association estimate published Tuesday. The industry is lobbying governments to provide aid in the form of cash injections or lines of credit, plus relief from taxes and fees, Oliveira said.

Avianca executives have held high-level meetings with members of President Ivan Duque’s administration in recent days to discuss a relief package, according to three people with knowledge of the situation. Officials are considering several options, including a delay in taxes and loans, according to two of the people, who requested anonymity because the talks are private.

In exchange, Avianca may agree not to fire workers, one of the people said. It’s unclear how quickly a package could come together, and the Bogota-based carrier declined to comment.

Last week, Brazil announced a series of measures, including postponing airport concession payments and air navigation tariffs. The BNDES state development bank is also discussing support for companies, said bank head Gustavo Montezano on Sunday.

On the other side of the spectrum is Mexico President Andres Manuel Lopez Obrador, who has ruled out tax waivers, bailouts or increasing public debt in response to the crisis. He also said he won’t turn to the International Monetary Fund for credit. The government is focused on assisting the elderly and most vulnerable citizens while it works on an economic recovery plan, he said.

There will be “no more rescue plans to banks and big businesses like they did in neo-liberal times,” he said in a daily press conference on Monday.

Chile’s government has also signaled it may not be willing to rescue Latam Airlines, the biggest carrier in the region, or other local airlines. Economy Minister Lucas Palacios said March 17 that the government’s focus was to help small companies, an idea that Finance Minister Ignacio Briones reiterated in an interview with El Mercurio published March 22.

To be sure, Latin American airlines aren’t waiting around before taking their own measures to minimize their cash outlays. Avianca is offering unpaid leave in which workers continue to receive health insurance and retirement benefits. Some 12,000 of its 21,000 employees have applied for the leave, a company spokeswoman said Tuesday. Azul also said it’s reducing payroll costs and expenses by about 65% in April, based on initiatives that include a unpaid leave program and a 50% pay cut for executives and 25% for managers.

Chile-based Sky Airline, which suspended domestic flights this week, has been in contact with the government as officials put together an economic plan, Chief Financial Officer Jose Ignacio Dougnac said in an interview with Pauta Bloomberg.

“This not only affects the airlines,” he said. “We are the first link in the chain, but this is going to affect everyone and we understand that they have to take measures with everyone in mind.”