Airline debt will balloon by 28 per cent as a result of the Covid-19
pandemic, potentially prolonging the industry’s crisis and keeping companies at
risk of going under even after travel resumes, according to the International
Air Transport Association (IATA).
Analysis by the industry body shows global airline debt
could rise to US$550 billion by the end of 2020 – an increase of $120 billion
over levels seen at the start of the year. IATA said $67 billion of that new debt
is comprised of government loans ($50 billion), deferred taxes ($5 billion) and
loan guarantees ($12 billion), while $52 billion is from commercial sources such
as loans ($23 billion), capital market debt ($18 billion), debt from new
operating leases ($5 billion) and accessing existing credit facilities ($6
billion).
According to IATA, governments have committed to providing a
total of $123 billion in financial aid to airlines, $67 billion of which will
need to be repaid. The balance is largely made up of wage subsidies, equity
financing and tax relief or subsidies. Less than 10 per cent of the relief will
add equity for those companies, the industry body said.
Director general and CEO Alexandre de Juniac commented: “Government
aid is helping to keep the industry afloat. The next challenge will be preventing
airlines from sinking under the burden of debt that the aid is creating.
“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.”
For carriers that have yet to avail of state aid, de Juniac
said governments should look at alternatives to debt-creating measures. “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.
“A tough future is ahead of us. 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.”