COVID-19: India's airline industry may face insolvency

India's air travel industry jolted by COVID-19, in grave danger of insolvency: IATA

A commercial passenger plane prepares to land at Netaji Subhash Chandra Bose International Airport, in Kolkata. (Credit: AFP)

India's carriers are in grave danger of insolvency in the wake of the COVID-19 pandemic, according to the International Air Transport Association (IATA).

The current industry crisis is much worse and more widespread than 9/11, SARS or the global financial crisis, IATA Director General and CEO Alexandre de Juniac said flagging the issue to Prime Minister Narendra Modi.

"Prior to the outbreak, India‘s air transport industry’s economic contribution was estimated at $35 billion, supporting 6.2 million jobs and contributing 1.5 per cent to the GDP in India. 
However, COVID-19 has led to the destruction of air travel demand on an unprecedented scale," he said in a letter to Modi.

The IATA chief said that travel restrictions and other measures adopted by governments have made most international air services economically unviable or operationally impossible, 
resulting in a rapid shrinking of the global air transport network.

IATA estimates that COVID-19 could result in a 9 per cent loss in passenger volumes and a loss of $2.1 billion in passenger base revenues for the air transport market in India in 2020.

"The disruptions in air travel from COVID-19 could reduce about 575,000 jobs and $3.2 billion in GDP supported by the air transport industry in India," the letter states.

Juniac said India’s scheduled carriers are currently in a grave and immediate danger of insolvency. 

"A cessation of operations would trigger a host of serious consequences. The contributions that the airline industry makes to the economy of India will be wiped out if the airline industry collapses. At stake is not merely the survival of the airlines and related industries, but whether a safe, efficient, and viable commercial aviation system will be available to 
contribute to the post-Covid-19 restoration and recovery of trade, travel, and indeed the economy of India itself,  he said.

According to him,  the airlines are taking every measure possible to mitigate the impacts by cutting avoidable costs. 

However, in reality airlines have substantial fixed costs which cannot be reduced by cutting capacity – salaries need to be paid as do aircraft financing arrangements among others. In recent weeks, airlines have been paying out more in refunds than they have received in new booking revenues, meaning that their reserves are rapidly depleting. Airlines risk running out of cash very soon.

Juniac requested Modi for direct financial support to compensate for reduced revenues and liquidity attributable to travel restrictions imposed as a result of COVID-19.

Besides, loans, he requested loan guarantees and support for the corporate bond market by the government or central bank, either directly to the airlines or to commercial banks that may be reluctant to extend credit to airlines in the present situation in the absence of such a guarantee.

The corporate bond market is a vital source of cash, but the eligibility of corporate bonds for central bank support needs to be extended and guaranteed by the government to provide access.

The IATA suggested  rebates on payroll taxes paid to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other government-imposed levies.

"Additionally, steps such as temporary reduction of excise duty on ATF; fuel credit to be offered to airlines; waiving  of airport charges – could give the aviation sector in India the critically needed relief to be able to survive through this crisis," he said.