China mulls cash injections, mergers to bail out airlines

Bloomberg

China is considering measures such as direct cash infusions and mergers to bail out an airline industry crippled by the coronavirus outbreak, according to people familiar with the matter.
One proposal involves allowing some of the nation’s biggest carriers — which are controlled by the state — to absorb smaller ones suffering the most from the collapse of travel, the people said, asking not to be identified because the information hasn’t been discussed publicly.
Another option being explored is for the government to inject billions of dollars to bail out the industry, they said. Discussions are ongoing, and no decision has been made on what the final bailout package will look like, they said.
The airline industry, particularly in China, has been roiled by the epidemic after the virus was first detected in the city of Wuhan.
In an unprecedented move, global carriers stopped about 80% of their China flights and local airlines grounded enough planes to carry 10.4 million passengers.
The disruptions have reduced China’s aviation market to the size of Portugal’s, according to industry researcher OAG Aviation Worldwide.
The government measures under consideration also include offering loan repayment waivers and more favourable leasing terms for aircraft, the people said.
Last week, the Civil Aviation Administration of China said the government would support measures to help the beleaguered industry recover, including mergers, but the regulator didn’t provide details.
The government already announced plans to lower taxes and fees for airlines, and has now moved more broadly to protect employment, temporarily waiving social-security premiums for companies across industries.
The press office at State-owned Assets Supervision and Administration Commission, which oversees key state enterprises such as major airlines, said it isn’t aware of any such bailout being planned. CAAC, the regulator in charge of airlines, didn’t immediately respond to a request for comment.
Shares of the biggest Chinese airlines, Air China Ltd, China Eastern Airlines Corp and China Southern Airlines Co, all closed at least 1.3% higher in Hong Kong and 0.6% higher in Shanghai on the news.
Spring Airlines Co was the best performer of the day, finishing with a 2.9% gain.
China’s aviation market, projected to overtake the US this decade and become the world’s biggest, now ranks 25th, according to OAG.
China Southern scrapped about 45% of flights in late January and early February, the highest rate among the nation’s top carriers, according to Citigroup Inc research.
The pain has spread to Hong Kong-based Cathay Pacific Airways Ltd, which warned that first-half financial results will be “significantly down” from a year earlier. Sales from Hong Kong and China have accounted for about half of its total revenue.
The private sector is also mobilising a response. Three of the biggest global leasing companies, AerCap Holdings NV, Air Lease Corp and Avolon Holdings Ltd, said that they are considering measures such as waiving lease payments and offering jet sale-leasebacks that would provide cash infusions to hard-hit carriers.
Avolon will offer as much as $6 billion in financing to help airlines hit by the virus, CEO Domhnal Slattery said. The Dublin-based firm will focus on sale-leaseback transactions in China and nearby countries.