In its latest briefing regarding the impact of the Covid-19 pandemic (and the near total halt in commercial air passenger traffic to help try and contain it) on the global airline industry, the International Air Transport Association (Iata) has reported that it expected global airline debt to jump by 28% by the end of this year, in comparison to the start of this year. In numbers, this increase would come to nearly $120-billion, taking the global airline industry’s debt burden to almost $550-billion.
This was because, around the world, over half of government aid to airlines would have to be repaid. Airlines had also been raising funds through commercial borrowing, to a total so far of $52-billion.
“Government aid is keeping the industry afloat,” highlighted Iata director-general and CEO Alexandre de Juniac. “The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating.”
Worldwide, government aid so far committed to airlines came to $123-billion. Of this, $67-billion would have to be repaid. This latter figure was composed of $50-billion in government loans, $12-billion in government loan guarantees and $5-billion in deferred taxes. The $56-billion that would not have to be repaid was made up of wage subsidies (which came to $34.8-billion), equity financing ($11.5-billion) and tax relief and/or subsidies ($9.7-billion).
“Over half the relief provided by governments creates new liabilities,” he pointed out. “Less than 10% 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.”
Total government aid, worldwide, was equivalent to 14% of global airline revenues last year. However, this figure was not uniform across the regions of the world. In North America, government aid was equivalent to 25% of the region’s airlines revenues in 2019, but in Africa and the Middle East, it was just 1.1%, and in Latin America, a mere 0.8%.
“Many airlines are still in need of a financial lifeline,” he stressed. “For those government 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. … Containing Covid-19 and surviving the financial shock is just the first hurdle. … After surviving the crisis, recovering to financial health will be the next challenge for many airlines.”