The International Air Transport Association (IATA) has today released research showing just how much aid has been doled out to airlines. In total, the world’s airlines have received $123bn in assistance, but IATA is swift to point out that more than half of this will need to be paid back.
Aid has come with strings attached
As news is released about increasing numbers of airline bailouts around the world, IATA has revealed that, in total, airlines have been allocated $123bn in aid so far. While this is welcome news for aviation, the reality is that $67bn of that aid will need to be paid back.
Of the funding received, $67bn is from government loans, deferred taxes, and loan guarantees. A further $52bn is from commercial sources, which include loans, capital market debt, existing credit facilities and debt from new operating leases.
Director General and CEO at IATA, Alexandre de Juniac, commented on the findings, saying,
“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.”
Overall, IATA says that the global aviation industry’s debt level will increase by $120bn by the year-end, taking it to a total of $550bn. This 28% increase could serve to cripple aviation going forward, in years when the return of demand, and therefore income for airlines, is predicted to experience a slow recovery.
Aside from the burgeoning level of repayable debt, IATA points out that more than half of governmental relief has created new liabilities for airlines. De Juniac said,
“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.”
Where has the money been spent?
Although $123bn sounds like a substantial amount of funding, IATA was quick to point out that this only represents around 14% of total airline revenue during 2019. It estimates that airlines globally generated $838bn over the last calendar year.
The regional variations in where bailouts have and haven’t been spent shines a light on gaps in funding, and where governments still need to step up.
Best performing in the IATA analysis is North America. In total, $66bn of aid has been promised, representing 25% of 2019’s revenue of $264bn. Europe is the next most generous region, having shelled out $30bn in aid. However, this is just 15% of the $207bn generated by airlines in Europe last year.
Asia Pacific comes in next, promising $26bnm of relief to its airlines so far. This represents 10% of the total revenue generated last year, calculated to be $257bn.
Unsurprisingly, the two regions that have fared the worst thus far are Latin America and Africa & Middle East. So far, Africa’s airlines have been promised just $800m in aid, 1.1% of last year’s revenue. Latin America has fared the worst, with just $300m in aid promised, representative of 0.8% of 2019’s revenue.
The lack of support in both Africa and Latin America has been plain to see. Both Avianca and LATAM in Latin American have filed for Chapter 11 bankruptcy protection, while numerous African airlines are in trouble. Struggling South African Airways, British Airways franchisee Comair and Air Mauritius are likely to be just the tip of the iceberg.
The debt is the biggest worry
Although there is clearly still room for improvement in terms of government support, IATA’s biggest concern is with the long term impact of the huge debt level airlines now find themselves under. Alexandre de Juniac concluded by saying,
“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 travelers. 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.”
What do you think about the level of government bailouts and the way they are being done? Do the ensure the survival of vital connectivity, or is it simply adding too much of a burden to aviation going forward? Let us know in the comments.