It was announced on Wednesday that Switzerland had guaranteed €1.2 billion ($1.31 billion) in state-backed loans to its two domestic subsidiaries, SWISS and Edelweiss, to help them through the liquidity crisis caused by COVID-19. The government estimated that the liquidity needs of SWISS and Edelweiss would total $1.54 billion (CHF 1.5 billion) up to the end of 2020.

Swiss Boeing 777
SWISS to receive government-backed loans to help it through the liquidity crisis. Photo: SWISS

Strict conditions

Macau Business reported today that the Swiss airlines would receive €1.2bn ($1.31bn) from the state to assist in their survival through the current crisis.

The Federal Council of Switzerland stated that financial support was subject to strict conditions. Primarily, it said that sufficient collateral must be available. Also, funds are only to be used for SWISS infrastructure, with no outflows to the parent companies located abroad. It also said that future earnings by both subsidiaries should be prioritized to repay the aid received and that dividends and other payments will be forbidden until that is done.

The government also said that it was not seeking an ownership stake in the airlines as a part of the financial package. However, the loans would be secured by SWISS and Edelweiss shares.

Loans are to be paid out by a consortium of Swiss banks, Lufthansa said in a statement and would be granted at market rates for a period of up to five years. These loans are still subject to approval by the Swiss parliament.

The government also announced financial aid for aviation-related businesses, stating that to resume flight operations, airlines are dependant on the services they provide at the national airports. The state plans to spend approximately $1.95bn (CHF 1.9bn) on this, although a favorable decision by the Swiss parliament is still pending.

Swiss Edelweiss Air Airbus A340 Kosovo Pristina
Edelweiss is also to benefit from government aid. Photo: Aero Icarus via Wikimedia

Aviation vital for the Swiss economy

In a statement to Spiegel, the Swiss government said,

The aviation industry is an economically critical infrastructure. A long-term interruption in Switzerland’s international connections would result in substantial economic losses.

At a press conference in Bern, the Transport Minister Simonetta Sommaruga explained that aviation was a part of the country’s critical infrastructure, responsible for transporting one-third of Switzerland’s exports while one-sixth of imports also arrive by air.

Before the disruption caused by COVID-19, it was reported by IATA that the industry supported 207,000 jobs and contributed CHF 27.7 billion ($28.5bn) to the economy, which accounted for 4.1% of Switzerland’s GDP. It is no wonder then that the Swiss government has been exploring options to provide financial support, as the collapse of the airlines could have a significant adverse effect on the economy.

Lufthansa, Grounded Aircraft, Berlin Brandenburg Airport
Aviation is essential to the Swiss economy. Photo: Getty Images

Lufthansa seeks financial packages from other countries

Lufthansa has agreed to the financing, according to a shareholder notification to the stock exchange. The group, which includes Brussels and Austrian Airlines, is still under negotiations with the governments of Belgium, Austria, and Germany for further aid.

Austrian Airlines has asked Vienna for approximately $833 million worth of aid from the corona relief fund. The parent company, Lufthansa, is attempting to negotiate around $9.77 billion from the German government.

With global air travel currently halted due to COVID-19, various companies have been reporting losses in the aviation industry. Lufthansa reported an operating loss of $1.3bn in the first quarter of 2020. This is only expected to increase in the second quarter, with results due next month. Without state aid, can the Lufthansa Group survive?

With airlines all over the world asking for financial aid, do you think that governments should be offering relief funds to airlines? Share your thoughts in the comments.