China mulls cash injections, mergers to bail out airlines

BEIJING: China is considering measures such as direct cash infusions and mergers to bail out an airline industry crippled by the Covid-19 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 has not been discussed publicly.

Another option being explored is for the government to inject billions of US 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, reducing China to a smaller international aviation market than Portugal, 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, the regulator in charge of airlines, said the government would support measures to help the beleaguered industry recover, including mergers, but the regulator did not provide details.

The press office at state-owned Assets Supervision and Administration Commission, which oversees key state enterprises such as major airlines, said it is not aware of any such bailout being planned.

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 Airlines Co Ltd scrapped about 45% of flights in late January and early February, the highest rate among the nation’s top carriers, followed by Air China Ltd and China Eastern Airlines Corp Ltd, according to Citigroup Inc research.

The pain has spread to Hong Kong-based Cathay Pacific Airways Ltd, which warned on Monday that first-half financial results will be “significantly down” from a year earlier. — Bloomberg

Source: TheEdgeMarkets