These are the airlines teetering on the brink of COVID-19 ruin

Having a home government with deep — and open — pockets is emerging as key in terms of whether an airline will make it through the coronavirus pandemic.

Carriers in jurisdictions where there is scant support from up high are most likely to go bust, according to an analysis by Bloomberg News. Using the Z-score method developed by Edward Altman in the 1960s to predict bankruptcies, Bloomberg sifted through available data on listed commercial airlines to identify the ones most prone to financial strife.

Against the same analysis done in March, when the virus was just starting to spread beyond China into parts of Asia and Europe, rapidly cutting off international travel, the results show a clear swing to the West. At least four of the 10 airlines named back then have restructured in some fashion, and all but one were in Asia.

The list now is populated more by carriers in Africa and Latin America, where some have already folded or entered administration. Representatives from Medview Airlines Plc, Precision Air Services Ltd., Grupo Aeromexico SAB and Gol Linhas Aereas Inteligentes SA didn’t immediately respond to requests seeking comment.

AirAsia Group Bhd. and Azul SA declined to comment. Thai Airways International Pcl said a reorganization plan will be proposed to the Central Bankruptcy Court by the end of the year, and noted the company plans to fulfill its commitments to all creditors.

A spokesman for Pakistan International Airlines Corp. said while data may show the airline’s liabilities exceed assets by around four times, "in reality it’s different because those liabilities are extended on sovereign guarantees and servicing is done through the government budget. In that sense, the situation isn’t as it shows. We’re comparatively doing okay.”

That’s not to say Asia is out of the woods. AirAsia X Bhd., AirAsia’s long-haul budget arm, is restructuring more than $15 billion of debt and the future of state-run Malaysia Airlines Bhd. remains uncertain. The director of aviation development at the Malaysian Aviation Commission, Germal Singh, said recently the government is unlikely to intervene to help out.

Cash burn

In Latin America, Grupo Aeromexico SAB last month received a $1 billion bankruptcy loan, while Colombia’s largest airline, Avianca Holdings SA, is awaiting court approval for a $2 billion financing plan as it reorganizes under Chapter 11. Mexican President Andres Manuel Lopez Obrador has ruled out bailouts for large companies, while a Colombian court in September temporarily blocked a $370 million government loan to Avianca after a citizen expressed concern about a lack of guarantees.

That’s in contrast to some parts of Asia. Although Singapore Airlines Ltd. has cut around 20% of its workforce, it’s raised 11 billion Singapore dollars ($8 billion) from loans and a rights issue supported by state investor Temasek Holdings Pte. Cathay Pacific Airways Ltd., which has also slashed jobs, raised billions of dollars in a restructuring in June that resulted in the Hong Kong government getting a stake and two observer seats on its board.

"Many governments have done a good job in financially supporting aviation jobs,” International Air Transport Association Director General Alexandre de Juniac said last month. "Where this has not happened — in Latin America for example — we see bankruptcies. Airlines continue to burn through cash and that is expected to persist into next year. Without a second tranche of financial aid, many airlines will not make it through the winter.”

The Z-score method uses five variables measuring liquidity, solvency, profitability, leverage and recent financial performance. The model has an accuracy rate of between 80% and 90% the year prior to insolvency, Altman said in a 2018 interview. A score below 1.8 indicates danger of bankruptcy within two years while a number closer to 3 suggests a company is on solid ground.

Among those airlines found to be most vulnerable in March were Virgin Australia Holdings Ltd. and Thai budget carrier Nok Airlines Pcl. Virgin Australia is now going through a 3.5 billion Australian dollar ($2.5 billion) restructuring under its new owner Bain Capital LP, while Nok Air has applied to the nation’s Central Bankruptcy Court to undergo debt rehabilitation.

Fresh waves

Alarmingly, the coronavirus outbreak shows little sign of abating. Global cases exceed 46 million as new waves sweep across Europe and the U.S., sending many cities back into partial lockdown. Deaths are nearing 1.2 million. Several vaccine trials have suffered setbacks and any effective jab may be months away.

IATA, in a new analysis released last week, said total industry revenues next year are expected to be down 46% on 2019’s $838 billion. Without additional government financial relief, the median airline has just 8.5 months of cash remaining at current burn rates.

While some places — in Asia, notably Singapore, Hong Kong, Australia and New Zealand — are toying with travel bubbles, IATA has said thorough COVID-19 testing is the only way to get the aviation industry back on its feet. But that idea is yet to gain widespread traction given the elusiveness of the virus, which typically has a two-week incubation period.

At stake are plane orders worth hundreds of billions of dollars with Boeing Co. and Airbus SE. Both manufacturers are facing scores of scheduled deliveries that may be deferred, or worse, canceled.

On average, there’s a 12.6% chance that airlines may cancel or defer planned deliveries from Airbus, according to an analysis by Bloomberg Intelligence, which arrived at the number based on the five-year default probability of airlines or their parents. The situation is worse for Boeing, which faces an average 14% risk for its orders, with American Airlines Group Inc. and United Airlines Holdings Inc. most likely to revisit their plans.

As many as 900 planes each at Boeing and Airbus are from unidentified customers and failed airlines and aren’t given any risk rating, BI analysts led by George Ferguson wrote in an Oct. 10 report. Airlines undergoing restructuring, like Avianca and Latam Airlines Group SA for Airbus, and Aeromexico and Virgin Australia for Boeing, pose the biggest cancellation risk.

"The worst isn’t behind any airline,” said Akbar Al Baker, chief executive officer of Qatar Airways Ltd., which has already received $2 billion in state aid. "Airlines need to be supported by their governments to survive.”