Airlines To See Tough Three Quarters, Need Support, Say Aviation Experts
Airlines stare at “pretty rough” three quarters, need support, say sector experts.
The next three quarters will be tough for the domestic aviation industry and it will require support as the government halted all flights from midnight to counter the spread of the new coronavirus pandemic, according aviation experts.
It will be a pretty rough period for the balance sheets of airlines until September this year, Mark Martin, founder and chief executive officer of Martin Consulting, told BloombergQuint in an interview. “This is the worst that the aviation sector has ever seen.”
India halted operations of all domestic airlines as the country went into a lockdown to check the spread of Covid-19 that has already infected nearly 500. Multiple brokerages estimate that losses from the disruption for India’s two listed airlines, Interglobe Aviation Ltd., the operator of the largest IndiGo, and SpiceJet Ltd. could top Rs 7,000 crore. CAPA, the aviation sector adviser, expects some airlines to shut permanently if the virus extends over six to nine months.
Another worry is a weaker rupee that will increase costs.
“The whammy that I see at the moment is more linked to external factors,” Martin said. The cost of spare parts and the lease rentals will be higher with the rupee going up to 76 per dollar, he said, adding that airlines will want to start making payments when “the currency is more conducive and there is a sense of recovery”.
The leasing companies are as affected as airlines as with no revenue coming in, carriers might not pay lease rentals, he said.
Kapil Kaul, chief executive officer-Indian subcontinent and Middle East, CAPA India, said with no cash for more than a week, some airlines are in an extremely vulnerable position . “The airline model works on advance purchase and sale and leaseback revenues, which have both dried up. Advance purchase is impacted by demand destruction and sale and leaseback will possibly get suspended as the whole system is closed.”
At this point in time “the critical factor is to back the industry with a faster rebound”, Martin said.
Support Needed
According to Martin, there’s a need for a “cohesive and comprehensive support package”. “Effectively, the government has to come with some sense of a plan to help airlines have a structured payment plan, defer the payments and help negotiate the leasing contracts.”
Kaul expects an intervention. “The government is aware of what is to be done and though I am not aware of the outcome, I am hopeful that the package will be meaningful.”
Martin also expects the airlines flying on international routes to benefit from the lower oil prices globally once the ban is lifted and the virus situation settles. “Any airline that has high earnings in foreign exchange and a great international network will have a positive income.”
Watch the full interview here: