SINGAPORE: The bottom for the global airline industry in terms of passenger traffic has passed but the financial implications from COVID-19 have only just started and bankruptcies are likely to continue at a steady clip over the next two years.
Airlines everywhere face a long gruelling battle to survive a prolonged downturn with revenues that will remain insufficient to cover costs – even with significant cost cutting – until there is a vaccination.FILE PHOTO: The International Air Transport Association logo is seen at the International Tourism Trade Fair ITB in Berlin, Germany, March 7, 2018. REUTERS/Fabrizio Bensch/File Photo
Double payments in some cases will be required but even spreading out the missed payments over a long period could have a disastrous impact given revenues will remain low and a large portion of the fleet will remain grounded for at least a couple of years. Airlines may be able to negotiate partial payments, which will help the leasing companies meet their own commitments, while delaying the resumption of full payments and the payback of the missed months plus interest.
In many countries these subsidies will soon expire, leading to job cuts which some airlines have already announced to meet notice requirements for impacted employees and unions. The expiration of wage subsidies will also impact the cost of employees that are being retained, leading in some cases to an overall higher wage bill despite the reduction in head count.Other costs will increase in the coming months as benefits from government support packages as well as concessions from suppliers expire.Over 30 countries are also providing financial support to airlines, which in several cases have resulted in new or increased government equity stakes.
All seven are expected to successfully emerge from bankruptcy or administration and survive following restructurings. READ: Commentary: COVID-19, the biggest crisis ever for Singapore’s aviation industry and Singapore Airlines Competitors are at a disadvantage as they cannot adapt as easily, leading to more Chapter 11 filings even if they have the ability to secure capital privately.In Asia several major countries also have not yet provided any financial support to airlines, including India, Malaysia and Philippines.
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