The numbers are both sobering and striking. Decimated by the spread of Covid-19, the global airline industry is operating with less than half the capacity it had in mid-January. In the last week, it slashed another 20 million seats from scheduled services.

Seat capacity has fallen from 109 million to 49 million, and OAG Aviation Worldwide say the figure could drop closer to 40 million given looming cuts in major markets. All over the world, airlines are petitioning for state bailouts, grounding flights and fundamentally restructuring overheads.

With its reservoir of cash reserves, Ryanair looks in good nick. Its debt payments are tiny relative to its income, and its liquid assets almost match its short-term debts. IAG, owner of Aer Lingus, has been at pains to point out its own cash buffer – IAG’s total cash and undrawn facilities are currently €9.3 billion.

As the big beasts dig in for a bleak summer, attention is now focusing on two smaller airlines. CityJet and Stobart Air have both been forced to temporary lay off most of their staff and ground the bulk of flights.

Now, it has emerged that both have engaged accountants Deloitte as they seek to negotiate with lenders and creditors over their debts following a rapid collapse in revenues.

Stobart Air operates the Aer Lingus regional service, which is now all but grounded. It has kept its public service obligation flights, essentially ones that are subsidised by the government to provide access and egress to regional Irish hubs, going from Dublin to Kerry and Donegal. But despite this, it has let go most of its staff, and is not able to bankroll its end of the government’s 70/30 wage support scheme.

The impact of Covid-19 is amplified by the issues among its shareholder base

Deloitte is now advising Stobart Air on the issues, as it seeks to deal with the twin threat of the its parent’s administration and the wider issues affecting the sector.

The airline is owned by Connect Airways, a consortium created by Virgin Atlantic, Stobart Group and investment adviser Cyrus Capital.

However, Connect Airways recently went into administration in the UK, with EY appointed.

The move was linked to the collapse of Flybe, also part of the Connect group.

As a result, administrators now control 49 per cent of Stobart Air, with the remaining equity held by the carrier’s staff. The Stobart Group, meanwhile, has been left as guarantor to significant loans held by Connect linked to Stobart Air leases.

Deloitte is now advising Stobart Air on the issues, as it seeks to deal with the twin threat of its parent’s administration and the wider issues affecting the sector.

Deloitte is assessing the company’s capacity to repay debts as they fall due and working on in-depth cash flow modelling. All options are being examined to find a path forward for the airline, which emerged from the examinership of Aer Arann during the last financial crisis.

Prior to the collapse of Flybe, Stobart Air was operating more than 1,000 flights a week on 38 routes. It was providing some franchised flying for Flybe. However, the bulk of its business is the Aer Lingus Regional operation.

It is difficult to glean the company’s financial status, as its main holding companies are incorporated in the Isle of Man.

It is understood that negotiations between the various stakeholders could push into next week before any path forward is agreed.

CityJet’s financial position

As Stobart Air plots its future course, Irish airline CityJet is now in advanced talks with its own lenders and bankers. The company is examining a range of options with its advisers as it attempts to deal with the impact of grounding its fleet and seeing its day-to-day operations come to a virtual standstill.

CityJet operates in nine different countries – the five Nordic countries, Belgium, France, the Netherlands and Ireland. It is working with governments in each of those regions about the various government supports and packages.

CityJet is a hybrid airline and aircraft leasing company, providing what are called wet leases: it rents out fully crewed, maintained and insured aircraft to other airlines. The airlines typically rent CityJet planes on a short term basis of one month to two years. It also operates a fleet of 34 small jets, which it operates on behalf of Aer Lingus, Air France, Brussels Airlines and SAS.

The company’s financial picture is not entirely clear as its most recent accounts date back to 2017. As my colleague Sean Keyes wrote earlier this week:

“It’s one thing if a couple of airlines stop their leases. But there’s not much CityJet can do if the whole industry shuts down at once. The problem is exacerbated by CityJet’s capital structure. It leases its planes from others on a long term basis; and then leases them out to customers on a short term basis. In its 2017 accounts, the most recent ones available, it had of €356 million finance lease obligations for 20 of its planes. They were finances at an average rate of 5.21 per cent.  Its €16.2 million in financing payments that year were nearly twice its €8.4 million operating income.

“Who does it owe money to? It’s difficult to say because the accounts are out of date, and CityJet is part of a group of companies registered in the Cayman Islands. It owed €219 million for aircraft finance leads to CJF-CRJ, a Cayman-registered subsidiary. And it owed €62.7 million to CityJet Holdings, its Cayman-registered parent company. €25 million was owed to Triangle Aviation 415 Limited.”

Cash is key

The situation across the wider industry is extremely perilous. According to the International Air Transport Association, airlines could lose $252 billion in revenue this year. The latest estimate is more than double the loss in its previous forecast, reflecting a sharp downward spiral.

Airlines have been attempting to get as much liquidity as possible. IAG told shareholders earlier this week that it was exploring a number of operational and treasury initiatives to further improve its cash flow and liquidity. Bloomberg has reported that Airlines worldwide raised more than $17 billion in bank loans in March to shore up their finances amid the coronavirus outbreak.

US carriers were the most active, borrowing $12.5 billion, according to data compiled by Bloomberg. Delta Air Lines Inc. is the top borrower with $5.6 billion, followed by Singapore Airlines, which secured a S$4 billion ($2.8 billion) bridge loan, and United Airlines Holdings, which raised $2.5 billion.

The airlines have borrowed new loans or drawn down on existing credit lines that they typically didn’t use before the health crisis. Companies in all industries globally have raised more than $230 billion from commercial banks since early March in response to the virus.