Heavy Debt Burden to Weigh Down Speed of Recovery for Airlines
The International Air Transport Association (IATA) has released an analysis showing that the airline industry’s global debt could rise to $550 billion by year-end. That’s a 28% increase over debt levels at the start of 2020.
In total, governments have committed to $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.
Apart from government "aid", about $52 billion has been raised from commercial sources including commercial loans ($23 billion), capital market debt ($18 billion), debt from new operating leases ($5 billion), and accessing existing credit facilities ($6 billion).
Over half the relief provided by governments will create new liabilities. Less than 10% will add to airline equity.
This changes the financial picture of the industry completely.
Alexandre de Juniac, IATA’s Director General and CEO said: "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.”
To put things in perspective, the $123 billion in government financial aid is equal to 14% of 2019’s total airline revenues ($838 billion).
But in Africa, the Middle East and Latin America average aid is around 1% of respective 2019 revenues.
There are still large gaps in the financial aid needed to help airlines survive the COVID-19 crisis.
de Juniac adds: "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 travelers. 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.”