Turbulent Times

The Air Carriers Association of the Philippines (ACAP) made headline news recently when it sought 8.6 billion pesos in monthly subsidy from the government to help restart the operations of its member airlines (Philippines AirAsia, Philippine Airlines and Cebu Pacific). This financial aid consists of wage subsidies (1.3 billion), working capital (6.8 billion), and navigational and airport charges (500 million). Later on, ACAP clarified that the 6.8 billion pesos are “neither cash nor bailout but for ‘credit guarantees so the existing credit lines of airlines can be opened by banks’ and ‘will assure the banking sector that they can lend money under existing facilities or provide new ones” (https://www.ttgasia.com/2020/04/27/philippines-airlines-plead-for-covid-19-bailout/). This comes as no surprise as the airline industry is one of the hardest hit and critically impacted businesses due to the coronavirus pandemic.

National carriers all over the world have sought financial assistance from National carriers all over the world have sought financial assistance from their respective governments. Russia offered an emergency handout of $316 million for its airlines last 14 May 2020. Aeroflot, its national carrier, had already applied for the funding (https://www.rappler.com/business/260956-russia-offers-coronavirus-hit-airlines-subsidy). Thai Airways barely avoided bankruptcy when its government intervened. Its prime minister declared that “the airline will continue to operate” (https://www.bbc.com/news/business-52718464). Some airlines, however, succumbed to the crisis. Colombia’s Avianca filed for Chapter 11 in the US. Virgin Australia was unsuccessful in securing a government bailout. It is now under administration since April. Even David Calhoun, Boeing CEO, said in his interview that a major US airline might run out of business during the pandemic.

For a developing country like the Philippines, the government has earmarked Php. 27.1 billion fiscal stimulus package — Php. 4 billion for loans and the rest of the amount going to the tourism sector. The problem is, tourism sector is not only limited to the airline industry. It also includes the hospitality industry in general. Hotels, resorts, travel agencies, tour operators, the shipping industry will also need subsidies to jump-start their operations. This meager stimulus package is a far cry from the Php. 300 billion (or more) amount recommended by economists Alfredo Paloyo (University of Wollongong, Australia), Cielo Magno, Karl Jandoc, Laarni Escresa, Maria Christina Epetia, Maria Socorro Bautista, and Emmanuel de Dios (School of Economics, University of the Philippines) to avoid recession. This is intended for expenditures on social protection and economic recovery programs.

The Partido ng Manggagawa (Labor Party of the Philippines) posited that subsidies to airlines must have pro-labor stipulations (press release “Subsidy to airlines must have pro-labor conditionalities,” 12 May 2020):

  • No layoffs
  • Reinstatement of those already retrenched this year
  • Institution of worker representation in the corporate boards

To date, the government hasn’t given clearance yet for any ‘credit guarantees’ to ACAP member airlines. It will be a grim reality to see a Philippine carrier file for bankruptcy if this pandemic continues to cripple the airline industry. The government does not have a deep pocket for its social amelioration programs in the time of pandemic, much more to support the ailing airline industry. To survive, these airlines need to restructure its organization, downsize its fleet, siphon its resources, optimal use of digital technology, trim down its manpower, and fly to profitable routes immediately.

Post corona, lean airlines have a much bigger chance to withstand this turbulence.

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