ISTAT Jetrader - Autumn 2020 - 34

Phase Three is when the contagion
has been eliminated either by mutation
of the virus, herd immunity or a
vaccine. This is bound to be in a trough
of an economic recession. It could be
that we have gotten used to socializing
digitally and maybe instead of taking
vacations we take staycations and
spend our leisure time closer to home.
This phase, and mind you this is when
the contagion is eliminated, will be
characterized by stunted spending

power among both individuals and
corporates. This is also going to be
characterized by changing habits;
maybe we're going to choose to do a
Zoom meeting with our relatives or a
Microsoft Teams meeting for business
purposes rather than taking that flight
overseas to see our customer.
Phase Four is when the economy
starts to recover and we go back
gradually to normality. In that phase, I
think the inherent desire humans have

The Aircraft Funnel

Severity &Duration

A3 2 0 N EO A3 2 1
NEO
Freighters
B737MAX
A3 5 0 B7 8 7
A 3 2 0 C E O B 7 37 800
B777-300ER

B767 B777-200
EMB170/190 A330
B7 5 7
B7 4 7 A3 8 0
CRJ200
MD 80 A 3 4 0 MD 11

1

Rent deferrals, mark to market of lease rentals,
defaults, and rejections of leases and repossessions are
going to be costly and time consuming.
34

* T H E O F F I C I A L P U B L I C AT I O N O F I S TAT

to travel will manifest itself and things
will go back to normal. The timeline for
these four phases ... I have absolutely
no clue.
How do these four phases impact
the airlines? The symptoms for the
airlines, which will depend on the
severity and duration of the pandemic,
would look like this. In Phase One, the
airlines are burning cash while their
planes are grounded. The revenue
streams are anemic, and to limit the
bleeding, the airlines have to hoard
cash, save costs, furlough people, fire
people, try to seek subsidies, seek
rent and debt payment deferrals, raise
debt, and mortgage assets that they're
holding and then hopefully pump in
some equity.
In Phase Two, the airlines start to
fly again, but they are still going to be
burning cash while the airplanes fly
because the revenues will be weak,
load factors will be iffy, and yields are
going to be pretty low. The cost will go
up, because now you have to pay for
fuel and you have to pay for labor, and
you have to pay way fees. The airlines
would still burn cash. Then you have
the increased burden of heavy liabilities
for the debt you're taking on, and the
rent you have deferred would have to
be caught up. The chances are that the
airlines would have to seek permanent
relief and have to restructure. This
restructuring can be done either in
court or out of court. In that process,
capacity will be slashed, liabilities will
be marked to market, the equity will be
squeezed, creditors will move into the
position of equity, and the risk premia
for financing will be higher. That is also
going to increase the cost.
In Phase Three, the pandemic is
gone. Planes are flying and nobody
needs to be afraid of flying anymore.
However, the problem is the airlines
that did survive without restructuring
their liabilities, and maybe shedding
some capacity, will be facing fierce
competition from airlines that did
restructure that now have much
lower costs and are much more
ISTAT Jetrader - Autumn 2020

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