TWTWTW 25 May – 29 May
Whereby the truth of claims of the disappearance of the airlines were seem to be false, apologies were seen to be half-hearted and slots to be worth more than €9 billion
On Monday 13 environmental groups, including Carbon Market Watch, the Environmental Defense Group and WWF, denounced the change sought by IATA and supported by the European Commission to change CORSIA’s emission baseline from the average of 2019 and 2020 CO2 emissions on international flights to a 2019-only level. The change, as reported in last week’s TWTWTW, “would eliminate all offsetting requirements for the duration of the CORSIA pilot phase and potentially several years thereafter,” the carbon market stakeholders noted in an open letter to the ICAO Council. “This would result in a de facto postponement of the start of the CORSIA by three to five years.”
Tuesday however, showed us that time is a very elastic concept when it comes to aviation. IATA acknowledge that COVID-19 has not claimed the lives of many airlines despite the devastating impact of the pandemic. Wait… you might remember the lobby group’s own frenzied statements in March that the typical airline had just 2 months of cash at the start of this year. It is now June, so by now that typical airline should be out of business. Did something go wrong or did something go right? We don’t quite know. What we do know is that IATA put the ‘panic’ into the word ‘pandemic’. Governments answered IATA’s calls to step in. So far, and this is not over yet, Governments have committed $123 billion in financial aid to airlines. This for sure sounds like something went right. But no, not really, according to IATA. Over half the relief provided by governments, some $67 billion, is in the form of loans, loan guarantees, deferred tax payments. This will need to be repaid and thus creates new liabilities. “Policy makers should be fully aware that the increased debt-burden will have consequences,” warned the ever unsatisfied director general Alexandre de Juniac. “Governments will still want airlines to improve environmental performance, to provide affordable connectivity and to manage the increased operational costs of COVID-19 containment measures. And they will need to re-pay the debt.” Now, there is a genuine thank you.
In Paris, de Juniac’s former employer, had another pressing matter to deal with. To pay Air France-KLM chief executive Ben Smith his 2019 bonus or not to pay the bonus, that was the question shareholders were asked during the company’s virtual shareholders’ meeting. An overwhelming majority – 81% – believed the former Air Canada executive deserved the €768,456 bonus and chose to ignore the public debate whether it is appropriate to award Smith a bonus while the Franco-Dutch group is receiving between €9 billion and €11 billion in state aid and staff face job and salary cuts. But why forego a bonus for 2019 while the pandemic occurred only in 2020? BTW, better be based in Paris than in Schiphol when it comes to bonuses. Dutch Minister of Finance Wopke Hoekstra voted against the resolution on behalf of the Netherlands’ 14% stake in the company “We are in a crisis, and a lot of tax money is needed to get companies and employees through this crisis. This is not the time for bonuses for directors of companies that we have to support,” Hoekstra noted. He intervened last month too in plans to increase KLM boss Pieter Elbers’ bonus to bring his remuneration package more in line with other CEOs of the Franco-Dutch group, calling the plan “unwise”.
Wednesday was an odd day. A really odd day. Not because Donald Trump threatened to shut down his much-loved social media platforms after Twitter added fact-check labels to two of his tweets. Not because the launch of the highly-technological SpaceX Falcon 9 rocket and its Crew Dragon capsule —he first manned orbital mission from the US in nine years— was called off due to poor weather. Not because European Commission president Ursula von der Leyen presented her mammoth €750 billion recovery fund dubbed ‘Next Generation EU’. It was an odd day because Brussels and Berlin were at odds over Lufthansa’s proposed €9 billion bailout, more specifically about the conditions DG COMP attached to clearing the German group’s so-called ‘stabilization package’ and Germany’s acquisition of a 20% stake. Commissioner Margrethe Vestager wanted Lufthansa to reduce its fleet and relinquish slots –quite a lot of slots– at Frankfurt and Munich airports. These demands prompted Germany’s political establishment to lash out at the Commission. They wondered why Vestager approved state aid to other EU flag carriers including Air Baltic, Air France (€7 billion), Alitalia (€3 billion), Finnair, and SAS without conditions and now is slapping tough remedies on Lufthansa. That is a fair question even though corona bailout rules have gradually been toughened (with the support of Germany) and different criteria apply to loans and equity. It most certainly is odd, even for the TWTWTW team which is against dominant market players. But did Brussels not sign off on Lufthansa’s buy of Brussels Airlines, Austrian Airlines and Swiss? Yes, now that you ask, DG COMP did and it did so without requiring severe remedies. Equally odd is that Angela Merkel undoubtedly had a call with her almost equally powerful compatriot and CDU party member asking for support, and von der Leyen opted to ignore it. At least for now. To be followed.
On Thursday, Vestager’s new best friend, Ryanair boss Michael O’Leary, spotted an opportunity to try to make renewed inroads into one of Europe’s most affluent and protected air travel markets. Playing on the power play between the Danish commissioner and Lufthansa group CEO Carsten Spohr –which dates from a strained meeting in Brussels when Lufthansa wanted to buy parts of defunct Air Berlin and its Austrian subsidiary Niki– O’Leary attacked Lufthansa for refusing to hand over slots in Frankfurt and Munich. On Spohr, he said, “he is probably the first man in history to demand €9 billion from Ms Merkel, then tell her to “buzz off” when she wants board seats and/or slot remedies.” Hm. If this would have been a tweet, Twitter would have to add a fact-check label. It was Vestager that requested the slot remedies and it was Merkel who told the European Commission to “buzz off” —albeit not in those words; she allegedly said: “We won’t allow that to happen.” BTW, Buzz is the brand of one of the Ryanair Group airlines.
All but exhausted and thus looking forward to yet another long weekend, Friday saw the European Commission demonstrate it does take fair competition and market distortion seriously, despite COVID-19. Its decision to open an in-depth investigation into the proposed acquisition Air Transat by Air Canada appeared in the Official Journal of the EU. We almost feel sorry for Lufthansa. While the probe does not target Lufthansa, it indirectly does involve the airline as Air Canada is Lufthansa’s partner in the transatlantic A++ joint-venture.