IATA: Global airline debt culd rise to $550bn
JOHANNESBURG - International Air Transport Association (IATA) said on Tuesday that global airline industry debt could rise to $550 billion (R8.6 trillion) this year - $120bn more than debt levels at the start of 2020 as airlines turn to financial aid to survive the Covid-19 crisis.
The disruption has seen many carriers go bust. and with a tough road to recovery for the industry ahead.
In South Africa both state-carrier SAA and Comair are in the midst of business rescue.
Alexandre de Juniac, IATA’s director general and chief executive, said, “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.”
In total governments had committed to $123bn in financial aid to airlines. Of this, $67bn would need to be repaid, the research found.
“Over half the relief provided by governments creates new liabilities. Less than 10 percent 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.
IATA's research showed that $67bn of the new debt is composed of government loans ($50bn), deferred taxes ($5bn and loan guarantees ($12bn).
IATA said $52bn was from commercial sources including commercial loans ($23bn), capital market debt ($18bn), debt from new operating leases ($5bn) and accessing existing credit facilities ($6bn)
De Juniac said many governments had stepped up with financial aid packages that provide a bridge over this most difficult situation, including cash to avoid bankruptcies. Where governments had not responded fast enough or with limited funds, IATA had seen bankruptcies. Examples included Australia, Italy, Thailand, Turkey and the UK, it said.
"Connectivity will be important to the recovery. Meaningful financial aid to airlines now makes economic sense. It will ensure that they are ready to provide job-supporting connectivity as economies re-open,” said IATA.
IATA urged governments still contemplating financial relief to focus on measures that helped airlines raise equity financing. “Many airlines are still in desperate need of a financial lifeline.
"For those governments that have not yet acted, the message is that helping airlines raise equity levels with a focus on grants and subsidies will place them in a stronger position for the recovery,” said De Juniac.
But De Juniac warned a tough future lay ahead of the industry.
"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. After surviving the crisis, recovering to financial health will be the next challenge for many airlines,” said De Juniac.