World airlines seek $77 billion lifeline to avert collapes

‘Local airline lost N500b to COVID-19’

World airlines have said the global aviation industry would require $77 billion in cash to push through the second half (H2) of 2020, to avoid collapse.

The airlines, under the aegis of International Air Transport Association (IATA), said the air travel industry was in dire straits, requiring an equivalence of $13 billion monthly or $300,000 per minute of 2020. And by 2021, the slow recovery in air travel will see the industry continuing to burn through cash at an average rate of $5 to $6 billion per month in 2021.

In Nigeria, Air Peace airline estimated that the local sector lost as much as N500 billion in the last six months.

Although airlines have since resumed flight operations in post-COVID-19 lockdown, analysts projected that about half of the global airlines would risk collapse without government’s support.

To date, governments around the world have provided $160 billion in support, including direct aid, wage subsidies, corporate tax relief, and specific industry tax relief including fuel taxes.

IATA, the clearinghouse for 280 airlines worldwide, called on governments to support the industry during the coming winter season with additional relief measures, including financial aid that does not add more debt to the industry’s already highly-indebted balance sheet.

IATA’s Director-General and Chief Executive Officer (CEO), Alexandre de Juniac, expressed appreciation for the support, which is aimed at ensuring that the air transport industry remains viable and ready to reconnect the economies and support millions of jobs in travel and tourism.

“But the crisis is deeper and longer than any of us could have imagined. And the initial support programmes are running out. Today, we must ring the alarm bell again. If these support programmes are not replaced or extended, the consequences for an already hobbled industry will be dire.

“Historically, cash generated during the peak summer season helps to support airlines through the leaner winter months. Unfortunately, this year’s disastrous Spring and Summer provided no cushion. In fact, airlines burned cash throughout the period. And with no timetable for governments to reopen borders without travel-killing quarantines, we cannot rely on a year-end holiday season bounce to provide a bit of extra cash to tide us over until the spring,” de Juniac said.

IATA estimates that despite cutting costs just over 50 per cent during the second quarter, the industry went through $51 billion in cash as revenues fell almost 80 per cent compared to the year-ago period.

The cash drain continued during the summer months, with airlines expected to go through an additional $77 billion of their cash during the second half of this year and a further $60-70 billion in 2021. The industry is not expected to turn cash positive until 2022.

Airlines have undertaken extensive self-help measures to cut costs. This includes parking thousands of aircraft, cutting routes and any non-critical expense and furloughing, and laying off hundreds of thousands of experienced and dedicated employees.

“Government support for the entire sector is needed. The impact has spread across the entire travel value chain including our airport and air navigation infrastructure partners, who are dependent on pre-crisis levels of traffic to sustain their operations. Rate hikes on system users to make up the gap would be the start of a vicious and unforgiving cycle of further cost pressures and downsizings. That will prolong the crisis for the 10 per cent of global economic activity that is linked to travel and tourism,” de Juniac said.

There will be little appetite among consumers for cost increases. In a recent IATA survey, some two-thirds of travellers have already indicated that they will postpone travel until the overall economy or their personal financial situation stabilises.

According to the latest figures from the Air Transport Action Group, the severe downturn this year, combined with a slow recovery, threatens 4.8 million jobs across the entire aviation sector. Because each aviation job supports many more in the broader economy, the global impact is 46 million potential job losses and $1.8 trillion dollars of economic activity at risk.

Chairman of Air Peace airline, Allen Onyema, told The Guardian that the N180 billion industry losses earlier estimated was an understatement.

“We must be talking about more than N500 billion in revenue lost to date. Airplanes that could not be maintained during lockdown will cost us more to do now. For instance, there is one of our B777s in Jordan.

“When you’ve parked an aircraft for a while, you have to move it every seven days to, at least, enable tyres to change positions. It should not stay in one position for long. Now, there was a lockdown in Jordan with no one going to work. Nobody moved our plane for one month. This is a 777 where one engine costs about $10.2 million! Just because there were no people to work at the MRO, we are now going to change the entire 12 wheels. That is over $500,000.

“Upon that, the MRO is charging us $100,000 per month for parking. So, in the last seven months, that is $700,000 alone for parking. So, when people say N180 billion, it is a lie. We are losing over N500 billion,” Onyema said.