Airlines’ debt to cross Dh2T mark this year
dubai — The airline industry’s global debt could rise to $550 billion (Dh2 trillion) by the year-end, an increase of 28 per cent, or $120 billion, when compared to the start of 2020, the International Air Transport Association (Iata) said.
The new debt is comprised of $50 billion government loans, $5 billion deferred taxes and $12 billion loan guarantees by the governments. The private sector debt is comprised of $23 billion commercial loans, $18 billion capital market debt, $5 billion operating leases and $6 billion existing credit facilities.
So far, governments have announced $123 billion in financial aid to airlines. Of this, $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/subsidies ($9.7 billion). This is vital for airlines which will burn through an estimated $60 billion of cash in the second quarter of 2020 alone.
Government financial aid is equal to 14 per cent of 2019’s total airline revenues totaling $838 billion. “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,” said Alexandre de Juniac, director-general and CEO of Iata.
“Over half the relief provided by governments creates new liabilities. Less than 10 per cent 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,” said de Juniac.
Many governments have stepped up with financial aid packages that provide a bridge over this most difficult situation, including cash to avoid bankruptcies. Where governments have not responded fast enough or with limited funds, we have seen bankruptcies, he added.
“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.”
28% Increase in debt of global airlines in 2020