Airlines in India face imminent insolvency
Published: Sun 29 Mar 2020, 11:34 PM
Last updated: Mon 30 Mar 2020, 1:39 AM
Indian air carriers are in grave and immediate danger of insolvency as the aviation sector faces the grim prospects shedding 575,000 jobs of in the wake of the pandemic outbreak that is disrupting the industry across the globe, the International Travel Association warned.
In a letter dated March 24 to Prime Minister Narendra Modi, Iata Director General Alexandre de Juniac, said the Covid pandemic could result in a nine per cent loss in passenger volumes and $2.1 billion loss in passenger base revenues for the air transport market in India in 2020.
Warning that Indian airlines risk running out of cash very soon, he urged Modi for direct financial support the afflicted airline industry to compensate for reduced revenues and liquidity attributable to travel restrictions imposed as a result of the pandemic.
Globally, the airlines industry stands to lose a total $252 billion this year as against the $113 billion Iata forecast earlier as the airlines traffic has come to grinding halt amid an unprecedented eruption in Covid-19 infections across the world. As travel comes to a standstill with countries locked down to fight the virus, most carriers will go bankrupt by the end of May if they can't find support, Sydney-based Capa Centre for Aviation said last week.
Brian Pearce, chief economist at Iata, said on a conference call that recovery in the aviation world is unlikely to come quickly, and may take longer than six months as the world's economy slumps into a deep recession.
The Montreal-based world body that comprises some 300 airlines accounting for about 82 per cent air traffic globally said the pandemic-driven industry crisis is much worse and more widespread than 9/11, Sars or the global financial crisis.
"Unless government action is taken now, the post-pandemic economic recovery in India would be seriously impeded," de Juniac stated in his letter ot the Indian prime minister.
"Prior to the outbreak, India's air transport industry's economic contribution was estimated at $35 billion, supporting 6.2 million jobs and contributing 1.5 per cent to the GDP in India. However, Covid-19 has led to the destruction of air travel demand on an unprecedented scale," he said in a letter to Modi.
The Iata chief said that travel restrictions and other measures adopted by governments have made most international air services economically unviable or operationally impossible, resulting in a rapid shrinking of the global air transport network.
The disruptions in air travel from Covid-19 could reduce about 575,000 jobs and $3.2 billion in GDP supported by the air transport industry in India, the letter stated.
"A cessation of operations would trigger a host of serious consequences. The contributions that the airline industry makes to the economy of India will be wiped out if the airline industry collapses. "At stake is not merely the survival of the airlines and related industries, but whether a safe, efficient, and viable commercial aviation system will be available to contribute to the post-Covid-19 restoration and recovery of trade, travel, and indeed the economy of India itself," Iata chief said.
According to him, the airlines in India are taking every measure possible to mitigate the impacts by cutting avoidable costs.
However, in reality airlines have substantial fixed costs which cannot be reduced by cutting capacity - salaries need to be paid as do aircraft financing arrangements among others. In recent weeks, airlines have been paying out more in refunds than they have received in new booking revenues, meaning that their reserves are rapidly depleting.
Apart from direct government financial support to compensate for reduced revenues, Iata chief requested loan guarantees and support for the corporate bond market by the government or central bank, either directly to the airlines or to commercial banks that may be reluctant to extend credit to airlines in the present situation in the absence of such a guarantee. The corporate bond market is a vital source of cash, but the eligibility of corporate bonds for central bank support needs to be extended and guaranteed by the government to provide access.
The Iata also suggested rebates on payroll taxes paid to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other government-imposed levies. "Additionally, steps such as temporary reduction of excise duty on ATF; waiving of airport charges - could give the aviation sector in India the critically needed relief to be able to survive through this crisis," de Junaic said.
Some of the leading carriers had already initiated cost-cutting measures. IndiGo has announced that its senior employees would be taking a pay cut of up to 25 per cent while GoAir has laid off its expat pilots, introduced leave without pay for employees on a rotational basis and announced a pay cut for all employees. Vistara said its senior employees would go on compulsory leave without pay for up to three days.