Finland’s flag carrier Finnair has received provisional approval for a €600m government loan. The loan should help the airline stay afloat for the time being as the coronavirus crisis continues to wreak havoc on the aviation industry as well as the global economy.
COVID-19 has prompted countries around the world to close their borders, sending a massive shockwave throughout the aviation industry. Airlines have been forced to ground thousands of flights. Some have even been forced to temporarily halt their operations entirely.
Privately-owned airlines are in a particularly tricky spot as they will have to rely on private investors and government bailouts to mitigate the huge financial losses they are currently amassing. But some airlines are in a better position to secure cash.
Finland’s national airline
With a controlling stake of just under 56%, the Finnish government has many reasons to ensure Finnair remains solvent throughout these difficult times. The majority state-owned airline serves an important role within the Finnish economy, operating both passenger and cargo flights across the country.
Finnair has already had to cut its route capacity significantly in response to reduced demand. The airline’s Chinese routes, which include flights to Guangzhou, Nanjing, Beijing Capital, Beijing Daxing, Shanghai and Xi´an, have been pre-emptively cancelled until at least 30 April. Additionally, the airline has cancelled a number of services within Europe, both as a result of national lockdowns and severely reduced demand.
Part of a wider funding plan
As reported by Flight Global, initial approval for the €600m loan was given by the Finnish government’s economic policy committee during a meeting on Thursday. The loan, however, will still need to be approved by the Finnish parliament.
At the moment, reports suggest that Finnair is working on securing funding via a number of different routes. The first port of call in the airline’s funding plan is a line of revolving credit totalling €175m. On top of these standard loans from banks, the airline is also looking to sell and lease aircraft which it deems surplus to its operational requirements. While the airline will certainly have enough spare capacity in its fleet at the moment, the real issue will be finding willing lessees.
The €600m government loan appears to be Finnair’s secondary option. It will come in the form of borrowed occupational pensions, making it a much higher-risk option if the airline does reach the point where it runs out of money.
In a statement on the prospect of securing final approval for its government loan, Finnair said:
“With the state guarantee, Finnair aims to further solidify its cash position and business continuity even if the coronavirus situation prevails longer than currently anticipated.”
As a majority state-controlled airline, Finnair is in a position many smaller airlines aren’t. Government backing should go a long way towards helping the airline fend off insolvency for the time being. However, depending on how long the COVID-19 crisis lasts, even state-backed airlines will be in real trouble.