Dubai - Post-pandemic control measures will make operations more costly.
- Waheed Abbas
-
Updated: Wed 27 May 2020, 11:13 PM
Airline industry's global debt could rise to $550 billion (Dh2 trillion) by year-end, an increase of 28 per cent or $120 billion when compared at the start of 2020, the International Air Transport Association (Iata) said.
The new debt is comprised of $50 billion government loans, $5 billion deferred taxes and $12 billion loan guarantees by the governments. While the private sector debt is comprised of $23 billion commercial loans, $18 billion capital market debt, $5 billion operating leases and $6 billion existing credit facilities.
So far, governments have announced $123 billion in financial aid to airlines. Of this, $67 billion will need to be repaid. The balance largely consists of wage subsidies ($34.8 billion), equity financing ($11.5 billion), and tax relief / subsidies ($9.7 billion). This is vital for airlines which will burn through an estimated $60 billion of cash in the second quarter of 2020 alone.
The government financial aid is equal to 14 per cent of 2019's total airline revenues totaling $838 billion.
"Government aid is helping to keep the industry afloat. The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating," said Alexandre de Juniac, director-general and CEO of Iata.
"Over half the relief provided by governments creates new liabilities. Less than 10 per cent will add to airline equity. It changes the financial picture of the industry completely. Paying off the debt owed governments and private lenders will mean that the crisis will last a lot longer than the time it takes for passenger demand to recover," said de Juniac.
Many governments have stepped up with financial aid packages that provide a bridge over this most difficult situation, including cash to avoid bankruptcies. Where governments have not responded fast enough or with limited funds, we have seen bankruptcies, he added.
"A tough future is ahead of us. Containing Covid-19 and surviving the financial shock is just the first hurdle. Post-pandemic control measures will make operations more costly. Fixed costs will have to be spread over fewer travellers.
And investments will be needed to meet our environmental targets. On top of all that, airlines will need to repay massively increased debts arising from the financial relief," said de Juniac.
waheedabbas@khaleejtimes.com