Business

Most airlines may fly into bankruptcy on COVID-19: CAPA

Ground reality: As fleets are grounded, cash reserves are running down quickly.

Ground reality: As fleets are grounded, cash reserves are running down quickly.   | Photo Credit: G.P. Sampath Kumar

Govt., industry must act in tandem to avoid catastrophe

As of now, 145 countries have been affected by COVID-19 and most airlines in the world will go bankrupt by the end of May 2020 on account of restrictions being put in place to prevent the spread of the virus, said Centre for Aviation (CAPA), a leading aviation consulting group, in a report.

It said co-ordinated government and industry action is now needed “if a catastrophe is to be avoided.”

“As the impact of COVID-19 and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants. Cash reserves are running down quickly as fleets are grounded and what flights there are, operate much less than half full,” CAPA said.

“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation, it is to discourage flying.

“Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon,” it added.

Commenting on the Indian scenario Kapil Kaul, CEO and director, CAPA South Asia, said, “The CAPA report is in global context. Depending on the extent of the spread of COVID-19corona virus in India, the impact on Indian airlines with weaker balance sheets will be severe.

“More important, raising funds, if required, may be very challenging. Reducing Goods and Services Tax (GST) on aviation turbine fuel (ATF) may be critically required but this may not be enough to compensate for a sharp demand slump. At this stage, we are now not commenting on the impact in India but it is likely that risks will significantly increase,” Mr. Kaul said.

As per CAPA, different governments are failing to co-operate with airlines in a bid to make them stay afloat. “At a time, while governments are grappling with the health challenges of COVID-19, it is clear that there is little instinct to act cooperatively. Messages are mixed and frequently quite different. Each nation is adopting the solution that appears best suited to it, right or wrong, without consideration of its neighbours or trading partners,” it said.

When, for example, U.S. President Donald Trump peremptorily announced the effective cancellation of airline access to most Europeans, he didn’t even advise his European government counterparts in advance, let alone consult with them. Other governments have performed little better, CAPA said.

CAPA said the post COVID-19 chaos will offer an opportunity to reframe the foundations of a global airline industry.

Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Jul 14, 2020 2:49:30 PM | https://www.thehindu.com/business/most-airlines-may-fly-into-bankruptcy-on-covid-19-capa/article31084862.ece

Next Story