Government bailouts will delay airline sector recovery

The airline industry’s global debt level could soar by 28% to $550 billion by the end of the year, Iata has warned.

The $120 billion increase over debt levels at the start of 2020 comes as a result of government bailouts and other fund-raising efforts to help many carriers survive the Covid-19 pandemic.

Governments have committed a total of $123 billion in financial aid to airlines. Of this, $67 billion will need to be repaid, according to new analysis by the global aviation trade body.

The balance largely consists of wage subsidies ($34.8 billion), equity financing ($11.5 billion) and tax relief or subsidies ($9.7 billion).

“This is vital for airlines which will burn through an estimated $60 billion of cash in the second quarter of 2020 alone,” Iata said.

The $67 billion of new debt is composed of government loans ($50 billion), deferred taxes ($5 billion) and loan guarantees ($12 billion).

A further $52 billion is from commercial sources including commercial loans ($23 billion), capital market debt ($18 billion), debt from new operating leases ($5 billion) and accessing existing credit facilities ($6 billion), according to the analysis.

Iata director general and chief executive Alexandre de Juniac said: “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.

“Over half the relief provided by governments creates new liabilities. Less than 10% will add to airline equity.

“It changes the financial picture of the industry completely,” he warned.

“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.”

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