The International Air Transport Association (IATA) released an analysis showing that the airline industry’s global debt could rise to $550 billion by year-end. That’s a $120 billion increase over debt levels at the start of 2020.
IATA said $67 billion of the new debt is composed of government loans ($50 billion), deferred taxes ($5 billion), and loan guarantees ($12 billion). It said $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).
IATA says financial aid is a lifeline to get through the worst of the crisis without folding operations. But during the re-start period later this year, the industry’s debt load will be near $550 billion, a massive 28% increase.
Mr. Alexandre de Juniac, IATA’s Director General and CEO, says: “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.”
According to IATA, governments have committed to $123 billion in financial aid to airlines. Of this, $67 billion will need to be repaid. The balance largely consists of wage subsidies ($34.8 billion), equity financing ($11.5 billion), and tax relief/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.
“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. 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,” de Juniac adds.