The Economist 04Apr2020

The EconomistApril 4th 2020 55

1

M

anagers are encouraged to set

enough aside for a rainy day. The co-

vid-19 cloudburst means even the most

prudent companies are rapidly exhausting

their cash. Many will need a bigger umbrel-

la that only the state can proffer.

The size of antiviral economic mea-

sures agreed so far is breathtaking. On

March 27th President Donald Trump

signed off on a record $2trn stimulus,

which includes loan guarantees that could

fund more than twice as much in corporate

borrowing. Britain, France, Germany, Italy

and Spain have their own “bazookas”,

worth hundreds of billions. Who exactly

will need help, how much and in what form

is not yet entirely clear. But the contours of

arguably the biggest corporate rescue in

history are taking shape.

Some industries are seeking bespoke

packages. First up, airlines. Those with

stronger balance-sheets, such as Austra-

lia’s Qantas and iag, owner of British Air-

ways, would be just as happy if weaker ri-

vals disappeared. But the International Air

Transport Association, the global trade

body, warns the pandemic will cut industry

revenues in 2020 by $252bn, or 44%, rela-

tive to last year’s. Its members have can-

celled 2m flights. Roughly 35-45% of airline

costs are fixed, and so cannot be cut quick-

ly, reckon analysts at Citigroup, a bank.

Delta, an American carrier, says it is losing

around $50m a day.

Some flag-carriers have already been

bailed out: Alitalia has been nationalised

(again), Dubai has rescued Emirates and

Singapore Airlines raised equity with the

backing of Temasek, the city-state’s sover-

eign-wealth fund. tui, a German tour oper-

ator with its own aeroplanes, received

€1.8bn ($2bn) in state-backed loans.

In America, where two-thirds of global

airline profits are made, vigorous lobbying

helped carriers secure their own tailored

package. A $50bn mix of loans and grants

has been earmarked to keep them aloft.

They will be eligible for support worth six

months of payroll, far more than other

businesses. American Airlines said it was

expecting $12bn from the government. Car-

riers have agreed to retain staff until Octo-

ber, slash salaries of top brass and halt

shareholder payouts until late 2021. Some

may have to give the government a slice of

shares (or securities that convert into

them) in exchange for cash, though precise

terms have yet to be spelled out.

The only other American businesses

entitled to their own pot of cash were those

deemed “critical to maintain national se-

curity”. That sounds like a euphemism for

Boeing, America’s troubled aircraft-maker

(see next article). But other industries will

no doubt claim the “critical” label for them-

selves. Oil producers, reeling from low

crude prices, are said to be trying.

Elsewhere, some carmakers are liable to

make a similar case. Like airlines, they are

household names that sit at the heart of

complex ecosystems with millions of em-

ployees. Governments ignore their pleas,

should these come, at their peril. And come

they may: demand for cars may slide by

around a sixth this year and is unlikely to

recover fast. Germany’s Volkswagen says it

is losing €2bn a week. Like Renault of

Corporate rescues

Great white night

Governments are once again splurging to keep big companies afloat

Business

56 Boeing’s bail-out options

57 Show business and the pandemic

57 Indestructible Huawei

58 Bartleby: Jobs for jailbirds

59 Schumpeter: You’re furloughed!

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