Massive debt repayments to drag out coronavirus crisis for airlines

Demand crisis is only first hurdle for airlines as 30% increase in debt repayments looms
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The coronavirus crisis will last “a lot longer” for airlines than the time it takes for passenger demand to recover as carriers face massive debt repayments to governments and private lenders.

Governments around the world have committed to $123 billion in financial aid for airlines, of which $67 billion will need to be repaid.

The additional financial assistance could see global airline debt rise to $550 billion by year-end, a near 30% increase compared to the start of 2020, according to the International Air Transport Association (IATA).

“Government aid is helping to keep the industry afloat,” said Alexandre de Juniac, IATA’s CEO, who has been lobbying countries to loan money to their carriers since the crisis began.

“The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating.”

De Juniac said that less than 10% of financial relief from governments 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.”

Debt repayments will be highest in markets where governments have provided the most amount of aid to airlines.

Governments in North America have promised $66 billion of aid to airlines and authorities in Europe and Asia-Pacific have pledged $30 billion and $26 billion, respectively.

States in the Middle East and Africa have promised just $800 million, representing 1% of 2019 revenues.

De Juniac said that additional financial relief from now should focus on measures to help 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.”

He added: “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.”

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