Business World

Covid-19: Debts of airlines soar; govts. may help raise equity financing

AirAsia aircrafts at Senai International Airport.

TheMole
Written by TheMole

KUALA LUMPUR, May 27 2020: The debts of airlines could rise to US$550 billion by the year’s end due to the pandemic and this represents a 28 per cent increase from the start of the year.

The International Air Transport Association (IATA) noted that as a result governments all over have committed up to US$123 billion in financial aid to help airlines, of which US$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 or subsidies ($9.7 billion). 

“This is vital for airlines which will burn through an estimated US$60 billion of cash in the second quarter of 2020 alone,” said IATA in a statement.

IATA director-general and CEO Alexandre de Juniac said aid extended by governments has helped keep the industry afloat but over half the relief created new liabilities. 

Less than 10 per cent will add to equity and this changes the financial picture of the industry completely, said de Juniac.

Paying off the debts owed by governments and private lenders would mean the crisis will last longer than the time it takes for passenger demands to recover.

“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 financial relief. After surviving the crisis, recovering to financial health will be the next challenge for many airlines,” said the CEO.

IATA nonetheless said government aid could influence the speed and strength of the industry’s recovery, adding that those still contemplating financial relief should focus on measures that help airlines raise equity financing.

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