COVID-19: Airlines near bankruptcy
The global airline industry is expected to face its worst crisis ever as the coronavirus pandemic is crippling economic activities across the world, WOLE Shadare writes
Facing greatest risks
The coronavirus pandemic will bankrupt almost all of the world’s airlines in a matter of weeks, Australian aviation experts said.
With passengers scrambling to cancel their flights and carriers grounding their services, airline analysis and consulting firm, CAPA Centre for Aviation, warned most airlines worldwide would be bankrupt by May unless urgent action is taken.
“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” CAPA said in a statement on Monday.
Appeal for bailout
United States airlines are seeking a $50 billion bailout as the industry staggers in the wake of the Covid-19 pandemic.
Airlines for America which represents major carriers including American Airlines, Delta and United, is calling for immediate relief in the form of direct aid and loan guarantees.
“This is a today problem, not a tomorrow problem. It requires urgent action,” said the Airlines for America President, Nicholas Calio.
IATA makes case for African carriers
In a bid to ensure airlines do not go bankrupt and out of the skies, the International Air Transport Association (IATA) recently appealed to governments in Africa and the Middle East to provide emergency support to airlines as they fight for survival due to the evaporation of air travel demand as a result of the COVID-19 crisis.
Director-General and CEO of IATA, Alexandre de Juniac, said stopping the spread of COVID-19 was the top priority of governments, adding that they must be aware that the public health emergency has now become a catastrophe for economies and for aviation.
He disclosed that the scale of the current industry crisis was much worse and far more widespread than 9/11, SARS or the 2008 global financial crisis.
He lamented that airlines were fighting for survival, stressing that many routes had been suspended in Africa and Middle East and airlines have seen demand fall by as much as 60 per cent on remaining ones.
Urgent govt actions
“Millions of jobs are at stake. Airlines need urgent government action if they are to emerge from this in a fit state to help the world recover, once COVID-19 is beaten,” said de Juniac
He noted that extensive cost cutting measures were being implemented by the region’s carriers to mitigate the financial impact of COVID-19.
He, however, stated that due to flight bans as well as international and regional travel restrictions, airlines’ revenues were plummeting—outstripping the scope of even the most drastic cost containment measures.
With average cash reserves of approximately two months in the region, the IATA boss stated that airlines are facing a liquidity and existential crisis.
He said: “Support measures are urgently needed. On a global basis, IATA estimates that emergency aid of up to $200 billion is required.”
Options to consider
IATA is proposing a number of options for governments to consider. They include direct financial support to passenger and cargo carriers to compensate for reduced revenues and liquidity attributable to travel restrictions imposed as a result of COVID-19; loan guarantees and support for the corporate bond market by governments or central banks.
To him, the corporate bond market is a vital source of finance, but the eligibility of corporate bonds for central bank support needs to be extended and guaranteed by governments to provide access for a wider range of companies.
The group equally called for tax rebate to airlines, rebates on payroll taxes paid to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other Government-imposed levies.
Africa’s air transport industry’s economic contribution is estimated at $55.8 billion supporting 6.2 million jobs and contributing 2.6 per cent to GDP. In the Middle East air transport’s economic contribution is estimated at $130 billion supporting 2.4 million jobs and contributing 4.4 per cent to GDP.
IATA has also given country specific analysis of the impact of COVID-19 to Africa’s aviation industry.
It stated that out of the five major economies in the continent comprising South Africa, Kenya, Ethiopia, Nigeria and Rwanda, the disruptions from COVID-19 could result in 853,000 loss in passenger volumes and $170 million loss in revenue base in Nigeria.
IATA, the clearing house for over 280 global airlines, stated that the disruptions to air travel could also put at risk over 22,200 jobs in the country. If the situation spreads further, approximately 2.2 million passengers and $434 million of revenues can be lost.
The global airline body noted that this is consistent with the ‘Extensive Spread’ Scenario it published on March 5, 2020.
South Africa tops the country in Africa to incur the biggest losses occasioned by the disruption by COVID-19 not only to its aviation industry regarded as the biggest in the continent but generally on its economy because of the impact of the virus in the country.
The Rainbow nation according to IATA would experience six million loss in passenger volumes and $1.2 billion loss in base revenues. The disruptions to air travel, it further stated could also put at risk over 102,000 jobs in the country.
For Kenya, the disruptions from COVID-19 could result in 622,000 loss in passenger volumes and $125 million loss in base revenues in Kenya. The disruptions to air travel could also put at risk over 36,800 jobs in the country. If the situation spreads further, approximately 1.6 million passengers and $320 million of revenues can be lost.
Consistent with the ‘Extensive Spread’ Scenario IATA published on March 5, 2020, the disruptions from the COVID-19 could result in 479,000 loss in passenger volumes and $79 million loss in base revenues in Ethiopia.
The disruptions to air travel could also put at risk over 98,400 jobs in the country. If the situation spreads further, approximately 1.2 million passengers and $202 million of revenues can be lost.
Last line
This is a critical period for airlines and there seems to be no respite in sight for the carriers except the pandemic is urgently put under control.
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