Covid thrusts governments into cockpit with flag carrier aid

Bloomberg

Decades after being unshackled from government control, many of Europe’s largest airlines are being forced back into the arms of states by the pandemic.
With air travel still showing no signs of recovery in the region, the carriers may have to contend with their saviours as powerful shareholders for some time to come. Air France-KLM became the latest to get a 4 billion-euro ($4.7 billion) bailout that will see the French government reemerge as its biggest shareholder with a stake of up to 30%.
The flag bearer joins Germany’s Deutsche Lufthansa AG, Alitalia SpA, Sweden’s SAS AB and TAP Air Portugal to see a bigger state presence following aid sought to cope with one of the industry’s worst crises.
Airlines have been among the hardest hit by Covid-19, which decimated air travel. Even before the latest setbacks, the
International Air Transport Association said carriers would need as much as $80 billion more in government money
this year.
The concern in Europe now is that demands from the shareholding states may skew the industry in ways that would have an impact on everything from cost cuts to route decisions and ticket prices.
“While bailing out airlines in the context of the Covid-19 crisis is certainly a legitimate emergency measure, the suspicion is that this might serve as an excuse to return to state-owned carriers serving political agendas, at least for some governments,” said Sascha Albers, a professor of international management at the University of Antwerp.
Prior to the Air France-KLM announcement, European Union states had channeled at least 23 billion euros into airlines through loans, guarantees, capital injections and grants.
Airlines the world over have received state aid. In June, Cathay Pacific Airways Ltd sold preferred stock and warrants to the Hong Kong government convertible into a stake in the airline.
Singapore Airlines Ltd raised funds in a rights issue backed by state investor Temasek Holdings Pte. In the US, the government has made about $50 billion in aid available for carriers since the start of the pandemic in the form of grants and loans to cover employee costs.
European governments are being left with significant stakes more than two decades after the region’s airlines began being privatised — British Airways in 1987 followed by Lufthansa in 1997 and Air France in 1999. The 1990s also saw the EU’s deregulation of the airline industry, boosting low-cost carriers including EasyJet Plc and Ryanair Holdings Plc.
Preparing for the post-pandemic era will require airlines to take a hard look at their cost structures and organisation.
In Europe, with strong unions at former state-owned carriers, political interference in commercial operations may be tempting for some governments, especially with issues like job cuts, analysts said.
“Many governments still take the view that a national carrier is part of their overall political vision,” said John Strickland, who runs JLS Consulting in
London. The European Commission has been under pressure to rubber-stamp aid and save the region’s economy.