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 to 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 compared with 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 of $52-billion so far.

“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 [to] 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 governments have stepped up with financial aid packages that provide a bridge over this most difficult situation, including cash to avoid bankruptcies,” he reported. “Where governments have not responded fast enough or with limited funds, we have seen bankruptcies. Examples include Australia, Italy, Thailand, Turkey and the UK. 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 reopen.”

Iata estimated that the world’s airlines would burn about $60-billion in cash during the second quarter of this year. In addition to unavoidable costs, airlines would also have to refund tickets. But their cash reserves were low, with the median airline having about two months of cash reserves. Consequently, many airlines still needed financial assistance. The association called on those governments which had not yet taken action to support their airlines to focus their assistance on helping airlines increase their equity levels, through the provision of grants and subsidies. This would mean that these airlines would be more strongly placed for the economic recovery.

“A tough future is ahead of us,” affirmed De Juniac. “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.”