Chinese aviation companies begin to count losses

TOKYO — Chinese aviation companies have begun to count their coronavirus losses, with severe profit warnings from smaller listed airlines expected to be followed by similar announcements at larger peers.

Shandong Airlines, a Shenzhen-listed midsize carrier, said on Tuesday that its net loss for the first quarter would be in the range of 500 million yuan to 700 million yuan ($70.9 million to $99.3 million). This will exceed the annual net profit of 361 million yuan for 2019.

The airline, which is in effect owned by the provincial government and counts state-owned Air China as an investor, said, “Transportation capacity and operational revenue have vastly disappeared during the first quarter.” It did not cite detailed figures on revenue and operational data.

The company on March 28 said that in light of the expected impact from the coronavirus it would not recommend paying a cash dividend, even though its annual net profit for 2019 rose by 3.9% compared with the year before. The company paid 0.2 yuan per share as a dividend for the previous year.

The airline has a number of international institutional investors. Norges Bank, the Norwegian central bank, is the third largest shareholder with a 0.87% stake as of the end of last year, after the two state-owned companies.

China Express Airlines, a Chongqing-based private regional carrier, said its net loss for the first quarter would be between 90.75 million yuan and 115.86 million yuan. This represents a major reversal for the Shenzhen-listed airline, which in February estimated its annual net profit would more than double in 2019 to 502.83 million yuan.

The company does not disclose monthly operating data but on Tuesday evening said it had experienced a severe fall in demand in February, “where the peak in the run up to the Lunar New Year abruptly decreased very sharply.” It said there were signs of gradual recovery in March but that the fall in revenue was too substantial to cover its fixed costs.

Investors in airline debt are growing jittery. The Shanghai Stock Exchange on Wednesday suspended trading of a seven-year corporate bond issued by HNA Group, citing “abnormal fluctuation.” The halt came after HNA on Tuesday said it planned to negotiate a one-year debt moratorium on the bonds, which had been due today.

The exchange said it would only allow trading to resume from 14:57 local time, three minutes before the official close.

Airport operators are facing similar straits. Shenzhen Airport, the fifth largest in China, on Tuesday night said net profit for the first three months would be between 115 million yuan and 127 million yuan, compared with 172.96 million yuan for the same period a year ago.

The Shenzhen-listed airport was hit by airlines cutting back on flights and by government directives to alleviate burdens for carriers and tenants.

In February, the airport had 902,000 passengers, 79% less than a year earlier, while 12,300 planes took off and landed, a decrease of 58%. On top of diminished flight and passenger movements, the operator was virtually ordered to cut various rents and administrative fees for shops and carriers.

According to the International Air Transport Association’s updated estimate issued on Tuesday, global airline passenger revenue will drop by $314 billion in 2020, a 55% decline from 2019. In its previous analysis, revealed on March 24, the IATA estimated the figure to be $252 billion.

“The industry’s outlook grows darker by the day,” said Alexandre de Juniac, IATA director general and CEO, in a Tuesday statement. He stressed that the “scale of the crisis makes a sharp V-shaped recovery unlikely. Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market.”

Although financial assistance is being implemented by governments, he warned that “without urgent relief, many airlines will not survive to lead the economic recovery.”

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