Many airlines could run out of cash in two months
Travel demand has dropped to near zero for many global carriers and they have debts to pay
Dubai: Nearly 75 per cent of global airlines have enough cash to last them for just another two months... that’s according to the International Air Transport Association (IATA).
In the Middle East specifically, airlines have enough cash to last them between one- to 10 months, depending on each carrier’s financial position. IATA said on Tuesday that there is a growing liquidity crisis in the aviation industry with travel demand having dropped to zero for many airlines.
According to Brian Pearce, IATA’s chief economist, said many airlines are already running out of cash as of today, and that some loans and bonds will have to be refinanced.
A note from the Centre for Aviation (Capa), a provider of data on the aviation and travel industry, said that by the end of May, “most airlines in the world will be bankrupt”. It did not elaborate on how it arrived to that conclusion or how many airlines it examined in its research, but said that coordinated government and industry action is needed now “if catastrophe is to be avoided”.
Asked about the Capa note, Iata, said that bankruptcy by the end of May is a “logical conclusion” to draw, considering the liquidity shortage faced by airlines.
“[Bankruptcy] is clearly a risk because airlines are running out of cash, so they won’t be able to sustain operations,” said Pearce. “Obviously, there are a number of airlines that do have credit lines who will be able to sustain, but there’s a large number [of carriers] in a much weaker position.”
IATA has thus been calling on governments to provide liquidity to local airlines to sustain operations.
State of fragility
Pearce said that the airline industry as a whole is a fragile one, even without factoring in the impact of the coronavirus. This fragility is due to low profit margins and the high cost of capital.
Such are the concerns about the impact of the virus outbreak that IATA said it is concerned that large parts of the industry “may not be there” before the year ends.
“It’s also the impact of border closures and travel restrictions. In many cases, demand for the business of many airlines has fallen to zero,” Pearce said during a conference call with journalists. “The vast majority of airlines still have high levels of debt.
“That means there are fixed obligations to pay even in the absence of any revenues, and that’s the critical thing driving the crisis for liquidity.”
IATA said last week that it expects reduced travel demand due to the virus outbreak to have a $113 billion hit on the revenues of airlines globally. Pearce said on Tuesday that with the fast developments in terms of lockdowns and travel restrictions, the $113 billion estimate is “too low”.
While he can’t yet project how large an impact the virus will have on airline revenues; the situation is “worse that we thought it would be”. That entails “significant job losses” across not the just the aviation industry, but other sectors it supports.