Indian aviation industry stares at losses of up to USD 3.6 billion in Q1 due to travel ban

Aviation consultancy CAPA on Wednesday projected initial losses of USD 3.3-3.6 billion for the Indian aviation industry in the first quarter of FY2021 in the eventuality of all air services including domestic remain shut by June due to the coronavirus pandemic.

The pandemic has had a significant impact on the aviation industry due to the stringent border controls by a host of countries and imposition of the travel ban on the people of other nationalities to contain the virus infection.

The Indian government has also suspended all air services among the several measures to prevent if from getting a large part of the population infected.

" India's aviation sector could incur losses of USD 3.3-3.6 billion in 1QFY2021. Assuming that all domestic and international operations remain grounded until Jun 30," the Centre for Asia Pacific Aviation (CAPA) India said in its preliminary report.

Prime Minister Narendra Modi on Tuesday announced a 21-day complete lockdown from Wednesday, stating that it was the only way of breaking COVID-19 infection cycle.

"Even with some partial resumption of services in May and June, the financial outcomes may not change significantly," Modi said in his televised address to the nation Monday evening.

The CAPA has also sought "urgent" government intervention and coordinated industry response to address all the requirement of the aviation industry.

According to the CAPA, the airline sector losses are expected to be around USD 1.75 billion while that of the airports and concessionaires at around USD 1.50-1.75 billion and another USD 80-90 million losses of the ground handling companies.

Noting that the domestic airline sector was already vulnerable even prior to the advent of COVID-19, the CAPA said most Indian airlines have not structured their business models to be able to withstand even regular shocks, such as elevated fuel prices or economic downturns, let alone once-in-a-century events.

For latest updates on coronavirus outbreak, click here

With few exceptions, Indian carriers have weak balance sheets and precarious levels of liquidity, the CAPA said in the report, adding airlines have generated cash to stay afloat through advance sales or sale-and-lease back margins (and government infusion in the case of Air India), but with no cushion to be able to withstand downward cycles.

Stating that with global aviation almost grinding to a halt - and for what could be an extended period – this is a state of affairs that will heighten risks for even the strongest carriers in the world, CAPA apprehended several weaker airlines might go belly-up.

According to the CAPA, India's airline system is certainly "not prepared" for such a severe systemic shock, and this will have an impact on the entire aviation value chain, including the airport operators; duty free, retail, F&B, MRO,among others.

"The entire sector is now in a state of crisis which will certainly impact FY2021 and quite possibly well beyond," it said.