Governments across the world face a ‘moral hazard’ when it comes to supporting airlines through the coronavirus crisis, as they seek to ensure any investments benefit the citizens of their respective countries, according to CTAIRA analyst Chris Tarry.
Speaking today during the webinar COVID-19: What hope for aviation and aerospace? – the first of a planned series organised by FlightGlobal – Tarry states: ”There’s a huge moral hazard associated with this. Governments are acutely aware of that.”
Among the tough choices faced is making sure investment is channelled to the right operators.
“Governments have to decide how much is required – it’s perhaps a question of backing winners,” he states. “There’s no point in sustaining an unsustainable business in a competitive environment.”
In terms of choosing which airlines to back, he also cites stories that multinational airline groups might need to be broken up to make state aid palatable for governments.
“If I am a government investing in an airline group, I surely want to make sure that my investment – debt, equity, whatever – goes to the benefit of citizens of my country, who are ultimately the taxpayer.”
He uses the theoretical example of the Air France-KLM Group, where the French and Dutch governments might only want to help their respective national operators.
A similar dilemma applies regarding pan-regional airlines that service outbound leisure markets. “You are exporting economic benefit – there’s a huge societal benefit, but governments will need to weigh that up.”
Governments will also be considering whether any money invested will generate a worthwhile return.
“You’ve got to be sure this is money where there is going to be a return, or you’re going to get paid back,” Tarry says.
Even when help is forthcoming, in some cases “there will be conditions” that airlines might not wish to accept, he continues.
”Those conditions may not be acceptable to management where it is a private business, and they have always been used to determining what they ought to do and what they should do,” he states.
At the same time, Tarry also warns against the “perverse logic” of the government becoming a “lender of last resort”, where commercial options have been exhausted.
“On what terms does the government provide that capital?” he asks.
Tarry also notes that the decision on aid is easier for governments where a national carrier is the sole provider of connectivity in a respective market, because competitors are not lined up to replace any lost services.
For such governments, keeping a local operator in business – and ensuring an airline continues to generate huge economic and social benefits – will be a top priority.
For more on FlightGlobal’s webinar series, visit: flightglobal.com/webinars