As airlines around the world continue to grapple with the fallout from the coronavirus pandemic, the Icelandic government is considering taking a stake in the national flag carrier Icelandair. This latest news comes as carriers increasingly turn to their governments for help.
Hints that the Reykjavik-based airline could receive government support surfaced at the end of March, just as the world was starting to understand how devastating the COVID-19 outbreak was going to be.
The government is ready to help Icelandair
With countries sealing off borders and imposing quarantine periods for returning nationals, Iceland’s Minister of Transport Sigurður Ingi Jóhannsson told the Iceland Monitor (MBL) that Icelandair’s links to the outside world were crucial to the country. The Minister also implied that the government was prepared to pay Icelandair’s losses due to the coronavirus saying,
“There are many countries and regions that have closed borders and airports,” he said. “As a result, most airlines have canceled flights, and it is clear that Icelandair could not manage if we hadn’t stepped in. We considered it important, and are willing to cover certain costs, so we don’t lose them due to a shortage of flights.”
Fast forward just over a month, and you have American financial news outlet Bloomberg quoting Prime Minister Katrin Jakobsdottir as saying the government is considering taking a stake in the airline. When speaking to local radio, the 44-year-old Prime Minister said,
“If there will be specific support, we need to weigh if it is natural that the state gets a share in it or if the state’s interest is better guarded with another solution.”
For its part, Icelandair appears to be less than thrilled about the government getting too involved in the airline. However, it does not deny that Icelandair may need some kind of assistance.
Icelandair has laid off 95% of its employees
Since the effects of the coronavirus started to bite into the travel industry, Icelandair has, like other airlines, experienced financial difficulties. So much so that Icelandair has had to lay off 95% of its workforce. This move has prompted increased discussion about the airline’s health in parliament.
The talk in the Althing is leaning towards government involvement in the airline, even if it is just temporary. When speaking with Icelandic television station RUV, President and Chief Executive of Icelandair Bogi Nils Bogason said,
“We’ve seen this all around us, both in Europe and North America, that governments are helping airlines get through this. Airlines aren’t going to get through this without help. That’s just the way it is, and if it continues going for a long time, through the summer or longer, then [such assistance] will enter the picture.”
If Icelandair should require government assistance, it will not be alone in having to ask for help. In the United States, the government has agreed to a $25 billion rescue package for its beleaguered airline industry while over in Europe, governments are considering helping their national carriers as well.
The latest to receive state aid appears to be Air France to the tune of six billion euros, with the French government insisting that the money is contingent on the national flag carrier scrapping some domestic flights. While speaking about this Minister of the Economy, Bruno Le Maire told local French radio,
“When you can travel by train in less than two and a half hours, there is no justification for taking a plane.”
Europe’s biggest airline Lufthansa is also in talks with the German government over a multi-billion euro aid package. At the same time, Norwegian Air has just got approval for a debt-to-equity swap, which will allow it to tap into government funds.
More airlines will require government help to survive
With none of us knowing how long it will be to we get to what Spanish Prime Minister Pedro Sánchez calls the “new normal,” more and more airlines will be relying on state aid. For some, like Air France, there may be strings attached. As for Icelandair, the airline is crucial to the county’s economy and will be given all assistance necessary to keep it in business.
While controversy remains when it comes to governments helping airlines during the COVID-19 emergency, it seems necessary to ensure a healthy airline industry for the future. If you have any thoughts regarding government bailouts, we would love to read about them in the comments section.