HOTR: A near $100bn Equity Hole to Fill

By the Leeham News Staff

Dec. 7, 2021, © Leeham News: LNA published an article last April highlighting the divergence in financial fortunes between airlines in lessors in the aftermath of the COVID-19 pandemic. While most lessors avoided heavy losses, airlines recorded losses more significant than during any previous downturn.

Many airlines hadn’t published their annual results at the time. LNA now updates the figures with the latest annual results.

Lost Revenues, Depleted Equity, Increasing Debt

LNA analyzed the financials of 66 airlines across the globe that publish annual accounts.

Due to a lack of publicly available financials over the 2020 period, the following major airlines aren’t part of the analysis: Air India, Globalia (Air Europa’s parent), Hainan Airlines, LOT Polish Airlines, South African Airways, and Virgin Australia. Etihad and Alitalia published income statements but not balance sheets.

The below chart aggregates the figures to US Dollars.

Revenue across those airlines decreased by 60% year-over-year. Net profits went from $17bn to $-140bn, or a $-157bn swing. It is worth noting that US carriers earned $14bn out of the $17bn in profits among carriers worldwide. Note that we’re using the Net Profit, not the Operating Profit.

Despite several carriers issuing large amounts of new equity, it is nowhere near enough to compensate for the losses across the airline industry. The Equity (Assets minus Liabilities) decreased from $206bn to $112bn.

Large amounts of debt issuances meant that airlines’ balance sheet assets increased overall. As a result, the aggregated debt to equity ratio grew from 3.8 to 8.0 among those carriers.

As passenger traffic, let alone revenues, are nowhere near their 2019 levels, most airlines will still incur sizable losses during the following year. Capital raises won’t likely be sufficient to cover those losses.


57 Comments on “HOTR: A near $100bn Equity Hole to Fill

  1. It is worth noting that US carriers earned $14bn out of the $17bn in profits among carriers worldwide.

    I’m wondering how much that figure would be, if all of the bailout money was backed out of the equation. Sure – other airlines around the world got some gov’t welfare, but no one socializes losses as well as the US.

    MARCH 10, 2021

    “With the latest six-month extension that will keep thousands of workers on payrolls through Sept 30, Congress has awarded U.S. airlines $54 billion for payroll costs since March 2020.”

    • In fairness, this phenomenon may (is?) also probably be due to the fact that airlines in the US kept on serving the domestic market during the pandemic, whereas domestic/regional travel elsewhere ground to a halt. China is a possible exception, but the LNA staff presumably doesn’t have detailed figures for the airlines there.
      Remember that, in the USA, there are no viable alternatives to air travel for long distances. Also, the previous admin had a very dismissive attitude toward the pandemic, and didn’t introduce any far-reaching federal curbs — unlike most other countries.

    • Hi Frank, the $14bn profits were earned in 2019, before the pandemic. It just highlights how much more profitable US carriers were compared with the rest of the world before then.

    • My understanding is that it wasn’t bailout money but money to not furlough employees.

      • So free labour. Given that it is the second biggest cost center of an airline, I’d say that it’s pretty big…

  2. The airlines aren’t out of the woods yet.
    Not only have we still got CoViD on our plates, but airlines can also look forward to lots of flak out of the “green corner” — including all sorts of levies, increased landing fees, increased fuel costs, acquisition costs of newer-generation aircraft, etc.

    • Often opportunities are born out of market upheaval.

      With all the demographic change and the influx of refugees in Western Europe there are bound to be new niche airline opportunities for startups as these individuals are assimilated and income levels rise.

      • Wonderful then how a surprising numbers can soon fly back to their places of persecution or beyond as soon as they find refuge. At one point ISIS/ISIL were heading to a fro as well. Paid $80k each apparently,. Makes one think of Charles Lindbergh’s essay on aviation and its impact.

    • Taking a few readings at Simpleflying is always a good place to find out what a typical person, slightly more informed than most, might be thinking on this issue. I’m surprised that people, even here, talk of taxes and subsidies when the ICAO plan is very good and doesn’t need either. At this point the airlines are doing PR stunts of 50% and 100% when we are a decade from 10% SAF (63% should occur in 2050 according to COP26). It’s a very good plan but elements of the polities and media are a panicking people and ignorant of how the plan works.
      To summarise:
      1 Fleet renewal to reduced fuel burn (there is clearly 15%-20% there)
      2 Better routing and scheduling, supposedly 10% there
      3 Progressive Blending in of SAF till its 63%
      4 Carbon offsets for those that fail to meet the regulations.
      They plan seems workable, reasonable and is tax and subsidy free.

  3. I sometimes have the suspicion that US airlines are essentially credit card companies that just happen to fly planes.
    Not sure how much of this 14bn was due to air miles sales to third parties and revenue from their branded credit cards, but I would guess it must have been a substantial portion.

    • How Airlines Make Billions From Monetizing Frequent Flyer Programs

      In a bid to get a Coronavirus Aid, Relief, and Economic Security (CARES) Act loan of $4.75 billion, American Airlines recently completed a third-party appraisal of the AAdvantage program. That appraisal placed the value of just the U.S. portion of the AAdvantage program at between $19.5 and $31.5 billion.

      The American Airlines Group—which includes the AAdvantage mileage program—is currently valued by the stock market at $5.9 billion ($11.58 per share with 508.11 million shares outstanding as of July 14, 2020).

      If you subtract the conservative valuation of $19.5 billion from the $5.6 billion market capitalization for the combined group, the implied value of the airline operations is a negative valuation of almost $14 billion. Indeed, American Airlines’ own filings show that the airline had been losing money from its passenger operations even before the coronavirus pandemic sent airline travel into a tailspin.

      However, by generating billions of dollars in loyalty revenue, the airline has been able to report billions per year in profit.

  4. Indeed. Whatever these entities call themselves, they are not airlines in the truest sense of the word. This is what money printing and free money does.

    • In the article is the following:

      “Zhenmei revealed that the C919 prototypes made just 34 certification flights as of early December, when 276 takeoffs would be required.”

      I don’t believe this is correct or incorrectly translatated. Another article stated that:

      “just 34 certification tests have been completed out of a total of 276 certification tests required”

    • I was also surprised by this in the same article:

      “Until then, it was expected that the first commercial jet would be delivered to OTT Airlines, a subsidiary of China Eastern Airlines, the only airline to sign a purchase agreement for the C919, with five aircraft.”

      Only 5 firm orders?

          • Just one Chinese leasing co. canceled almost 50 MAX in 2020 and 2021. LOL.

          • Interesting link on the growth of Chinese lessors:

            “The number of China-based aircraft lessors that rank among the global top 50 increased by more than 40% in Q2 2020, compared with Q4 2019, according to data provider Cirium.

            The global travel and data analytics company, which monitors the activity of the world’s lessor fleet, said China-based lessors comprise more than a quarter of its global 50 ranking, from nine in Q4 2019 to 13 in Q2 2020, matching the number of Ireland-based lessors and overtaking the number of US-based lessors, which is 12.

            Regarding portfolio value and fleet size, China-based lessors account for 19% and 15% of the global top 50 totals respectively, with Ireland-based lessors having the largest total portfolio value of 35% and US-based lessors having the largest total fleet size of 36%.”


          • Another scrapped over 30 Boeing MAX orders, cutting it by one-third in 2020.

          • @Bryce

            According to a Cirium report, two leasing arms of Chinese banks are about the same size (in terms of portfolio value) as ALC, no laughing matter. 😂

            BTW, Avolon, one of the top three, is owned by a Chinese owner with a Japanese leasing company.

  5. Further to my “Green corner” remark above, this week produced some bad news for Amsterdam Airport (and, thus, KLM), which may have to drastically scale back operations so as to satisfy draconian (and very randomly set) limits on gaseous-nitrogen-compound emissions (NOx, NH3).

    The link is in Dutch.

    For those who are curious: these compounds precipitate onto land as solids and/or aqueous solutions, where they provide nutrients that allow some marginal plant species (which can survive on nitrogen-poor soils) to be out-competed by more common plant species (which prefer a higher level of soil nitrogen). So they’re causing a shift in biodiversity — e.g. heathers and gorses being supplanted by grasses and trees. Most people wouldn’t consider this to be an issue, but it’s gladly milked by environmental activists in pursuit of an “anti-everything” agenda.
    One way or another, it’s a major headache for the EU’s 3rd/4th largest airport. And a nightmare for KLM,

    • They ought to transfer their operations over the water to the UK as did Royal Dutch Shell.

    • The claim by Dutch environmental groups are provably nonsense.

      This claim that atmospheric increases in nitrous oxides (there has been a 20% increase since industrialisation) is by aircraft is totally and provably incorrect. Likewise internal combustion and diesels are also innocent.
      See Link:

      Research (isotope studies) focused on photochemical pollution in California Valleys found that the nitrates came not from intercanal combustion engines (or jets) but fertiliser over use.

      Remember the “Acid Rain” Panic of 20 years ago that will causing pine forest die back? It was blamed on sulphur pollution from power stations in the USA or the eastern block in Europe etc.

      It turns out to have been also caused by land use changes, run off and fertiliser over us. Nothing to do with coal, or internal combustion.

      The aviation industry needs to learn Saul Alinsky’s “Rules for Radicals” if it is to survive. Defending itself with reasonable actions and demonstrating 50% SAF flights will not work. They must unite and go on the attack against these types of environmental groups. They need to be besmirched because they deserve to be besmirched. They may claim to believe in science but in reality they have a hive mind as dumb and almost as dangerous as any medieval witch hunter.

      • I like the “medieval witch hunt” analogy.
        Of course the gas-phase-nitrogen discussion is a total red herring — the various fits that the Green movement gets into generally fall into that category. If activists stopped screaming and started listening, a lot of time, money and human resources could be saved — but that’s not likely to happen any time soon. In the meantime, a green cloud of ill-informed hysteria hangs above aviation’s head.

        Airbus sees this. As part of its response, it really seems to be taking hydrogen seriously:
        “Airbus Spain gets share in hydrogen program”

  6. AA is cutting back on 2022 widebody flights due to the ongoing 787 delivery hiatus:
    “American Airlines on Thursday said it will scale back its international flying next summer because of lengthy delivery delays of Boeing’s 787 Dreamliners and that the manufacturer plans to compensate the carrier.”

    “American planned to bring back 89% of its 2019 international long-haul flying next summer, but has trimmed that back to about 80%.

    “This weekend we will load our summer 2022 long-haul schedule, but it will not have the growth we initially expected,” Vasu Raja, American’s chief revenue officer wrote in a memo to staff, which was included in an company securities filing. “Boeing continues to be unable to deliver the 787s we have on order, including as many as 13 aircraft that were slated to be in our fleet by this winter. Without these widebodies, we simply won’t be able to fly as much internationally as we had planned next summer, or as we did in summer.”

    Raja wrote that Boeing “has advised us that they will compensate American for their inability to deliver the aircraft.””

    • My car is fairly average for Europe and I can easily achieve double that with all 7 seats occupied. Plus saving on taxi and train at either end

      • That’s great! But while you’re on the road, how many other cars do you see around you with 7-seat occupancy? Now, as a countermeasure, count all the cars with only one or two occupants. Picture becoming clearer?
        Another case of real world versus idealized world.

  7. After repeated massive layoffs, there are serious concerns that BA would face talent shortages when it ramps up its MAX production.

    • Previously:

      -> “Airbus is also not alone in facing problems. Boeing has had paint issues and a phenomenon known as rivet rash, or flecks of missing paint, on its competing 787s. A spokesperson said it was not safety-related and was being resolved.”

    • I’d take Airbus’s A350 problem over Boing’s MAX, 787, KC-46, 777-X, cash flow, debt, no-product-in-
      pipeline, no-sales, supplier, and workforce issues any time.

      We’ll see how it goes..

      • Bill7:

        I would take Airbus over Boeing overall.

        That said, its unheard of for this kind of fighting to break out with Airbus. Qatar has an AHJ that has recommended grounding.

        People talk about Boeing going black but we know a significant number of A350 had the issue and were repaired.

        No one has said how the repairs went of if there are future problems that keep coming back.

        My company had a building with the same kind of issue (I was around a lot as I had the mechanical systems repair and maint end ). The contract painter told them that the breakdown of the concrete could only be patched, it was gong to come back. It was cosmetic repair not a fix (image was important so they kept him at it)

        It took him years but he kept looking for a fix for the problem and eventually he found it. In the meantime the building got patched and repaired in those bad areas for 4 or 5 years.

        Why is Qatar AHJ not accepting Airbus work?

        Taking iffy legal action against Qatar looks to be desperation.

        Boeing knows what the problems are, its the fixes and how to apply quality control to the production at issue.

        If your fix is just cosmetic you have an extremely serious problem.

        Boeing claimed the MAX was fine and the FAA backed them up. Airbus is claiming the A350 issue is nothing more than cosmetics and EASA is backing them up.

        There is no clarity on the A350 issue.

        • > Boeing knows what the problems are, its the fixes and how to apply quality control to the production at issue. <

          An interesting point of view- thanks.

        • > Why is Qatar AHJ not accepting Airbus work?

          Because they want to pressure Airbus into taking those 350’s back or provide compensation.

          I bet without the collapse of long-haul flying those aircraft would never have been grounded by the Qatari government.

          • > Because they want to pressure Airbus into taking those 350’s back or provide compensation.
            I bet without the collapse of long-haul flying those aircraft would never have been grounded by the Qatari government. <

            That seems like a good assessment, to me.

        • “Boeing knows what the problems are ….”

          New production issues continued to pop up, how is that possible if BA has a grip of all the problems?

          Hard to share your unyielding optimism.

          • Pedro: Its not unyielding optimism. Its a statement of what is known. It is possible there are more issues, I don’t think any of them would be outside the issues we have seen. Certainly I could be wrong. That is part of engineering. You take the facts in front of you and begin the correction. You may find other things that are involved as you go along or have to re-vise the issue completely as you unravel it and understand what is at the core.

            The A350 saga is just beginning as Airbus has stated they may have to re-do the copper grid with different material. I was pretty shocked as in the pictures you can see a holder that looks like the ones we used to attache insulation to a steel pan (round head, shank and unknown what is on the end). Clearly its not adhesive. Sans the paint cover it looks crude.

            Jbeeko: Qatar is bringing out A380s to fill the gap, that does not indicate that they want to abandon A350. I read it as Qatar does not want to fight their AHJ. If more AHJ had acted the way they should we would not have had the MAX mess . An AHJ is not supposed to be a rubber stamp agreements or not.

          • @TW

            Do we know what engineering analysis has QCAA performed, or we have to take its words at face value??

    • Boeing appears to be rearranging the deck chairs on the Titanic with this C-suite mcMove.

      If they were serious, they’d be working hard improve relationships with their employees
      and suppliers who *actually build their planes* .

      Wake me up when that happens..

      • Bill7:

        You may be the modern Rip Van Winkcle then!

        On the surface Boeing looks bad and I have a confidence level in Calhoun that is down around absolute zero temp.

        There is likely groups within the company that want it working. Calhoun wants it to work if for no other reason than to pad his retirement.

        As has been noted, Boeing is not going to correct itself until there is a clean sweep in upper management.

        But, constant failures do fall on the CEO and the board has got to be looking at this and thinking, how soon can we dump this bozo?

        In the meantime, Lund seems to be very capable and the type of person that would start the cultural change at the factory level to work with not against the FAA. Engineers like to fix things and have them working right, its in our DNA.

        If Lund can fix the 777X and 787 issues and start a semblance of normal there, it could setup for a brighter future (the future is not old programs and that comes from the top)

        • “On the surface Boeing looks bad and I have a confidence level in Calhoun that is down around absolute zero temp … Calhoun wants it to work if for no other reason than to pad his retirement”

          The same can be said when McNerney or Muilenburg was the CEO.

  8. > Engineers like to fix things and have them working right, its in our DNA <

    I agree; if they're allowed to do their work by management.

    Regarding Ms. Lund: we'll see. Boeing has little or no goodwill
    saved up with customers, employees, or suppliers that I can see- a tough job!

    • Bill7:

      Agreed and we have to wait and see on Lund. She can’t fix Boeing but she may be able to start BCA on a more sane path.

    • I hope she isn’t paid mostly based on short term free cash flow bonusses and sensitive for that, like so many.

  9. Looks like China has received its first “repayment” for clearing the MAX to fly again:
    “Boeing, China’s STAECO announce freighter capacity increase”

    “Boeing and Taikoo (Shandong) Aircraft Engineering Co. Ltd. (STAECO) have announced plans to create additional capacity for the 737-800 Boeing Converted Freighter (BCF) to help meet continued strong market demand. In 2022, Boeing will add two 737-800BCF conversion lines at STAECO’s facility in Jinan, China.”

  10. “How Boeing’s Responsibility in a Deadly Crash ‘Got Buried’” :

    “..In the 2009 [737] and Max accidents, for example, the failure of a single sensor caused systems to misfire, with catastrophic results, and Boeing had not provided pilots with information that could have helped them react to the malfunction. The earlier accident “represents such a sentinel event that was never taken seriously,” said Sidney Dekker, an aviation safety expert who was commissioned by the Dutch Safety Board to analyze the crash.

    Dr. Dekker’s study accused Boeing of trying to deflect attention from its own “design shortcomings” and other mistakes with “hardly credible” statements that admonished pilots to be more vigilant, according to a copy reviewed by The Times.

    The study was never made public. The Dutch board backed away from plans to publish it, according to Dr. Dekker and another person with knowledge of its handling. A spokeswoman for the Dutch board said it was not common to publish expert studies and the decision on Dr. Dekker’s was made solely by the board.

    [Update: The Dutch released the study after The Times published its investigation.]

    At the same time, the Dutch board deleted or amended findings in its own accident report about issues with the plane when the same American team weighed in. The board also inserted statements, some nearly verbatim and without attribution, written by the Americans, who said that certain pilot errors had not been “properly emphasized.” ..”

    The “Got Buried” in the NYT headline above curiously lacks agency. Did the ample evidence simply bury its li’l ol’ self ?

    Good luck to Ms. Lund at Boing; she’s got a tough row to hoe
    (if that’s really her job).

    • “Good luck to Ms. Lund at Boeing; she’s got a tough row to hoe”

      When you get to a certain level in a company, it doesn’t matter whether you actually do your job or not: the money pours in at such a high rate (salary; bonuses; equity plans) that you can build up a sizable nest egg in a matter of months. All you have to do is to keep the ship (barely) floating, so that you can continue to rake in the cash for as long as possible without getting discovered — the fact that the ship isn’t actually going anywhere is of no concern. When the ship finally does sink, or hits a reef, you’ll be relieved of your “duties”, with a nice golden handshake and without any liability.
      A perfect recipe for corporate disaster — well demonstrated at certain well-known corporations 😉

      • I hear you: check the Golden Parachute that the former
        head of PG&E got here in California after the wildfires
        a couple of years ago. That company had long ago stopped caring for their powerlines and the plant growth around them, which they used to do on a
        regular basis, and for which they were found at fault.

        No matter: she got multi-millions anyway.

        Elites ‘Fail’ Upward..

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