KUALA LUMPUR, May 26 – The airline industry’s debt could rise to US$550 billion (US$1= RM4.36) by year-end, a massive 28 per cent or US$120 billion increase over levels at the start of the year, according to the International Air Transport Association (IATA).
In total it said, governments had committed to US$123 billion in financial aid to help airlines survive the COVID-19 crisis.
“Of this, US$67 billion will need to be repaid. The balance largely consists of wage subsidies (US$34.8 billion), equity financing (US$11.5 billion), and tax relief or subsidies (US$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,” it said in a statement today.
IATA director general and chief executive officer Alexandre de Juniac said, aid extended by governments has helped to keep the industry afloat, but over half the relief provided by governments created new liabilities.
“Less than 10 per cent will add to airline equity. It changes the financial picture of the industry completely,” he said.
According to de Juniac, paying off the debt owed by governments and private lenders would mean that the crisis will last a lot longer than the time it takes for passenger demand to recover.
Tough future ahead
“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 financial relief. After surviving the crisis, recovering to financial health will be the next challenge for many airlines,” he said.
However, IATA said as many airlines are still in desperate need of a financial lifeline, government aid could influence the speed and strength of the industry’s recovery.
Hence, it urged governments which are still contemplating financial relief to focus on measures that help airlines raise equity financing.