Covid-19: Indian aviation awaits govt assistance

While governments around the world have announced billion-dollar stimulus packages to revive the fortunes of airlines, the Indian aviation sector is still waiting with bated breath on a possible bailout package. “In India, where all except one airline are hand-to-mouth, we have thus far received no news on any government assistance despite multiple representations,” said a senior airline executive.

According to aviation consultancy firm CAPA India, the U.S. has announced a $71 billion support package for the aviation sector from which airlines can access up to $25 billion of grants “for the continuation of payment of employee wages, salaries and benefits” for a period of six months. A further $4 billion has been allocated for cargo carriers and $3 billion for ground handlers and catering companies. “The entire $25 billion is solely for meeting staff payroll through till September. And 70% of that is a cash grant, not repayable; 30% is loan,” said the airline executive quoted earlier. “And this is for some of the most profitable airlines in the world.”

Similar bailouts for airlines in the U.K., Europe, the U.A.E., Hong Kong and Singapore are in the works. According to CAPA India, Virgin Atlantic has reportedly sought government assistance for loans and guarantees of over $600 million. Likewise, various airlines in Europe have negotiated loan guarantees from their respective governments — $650 million for Finnair; more than $540 million for airlines in Norway; and almost $500 million for Swedish carriers. “Air France and KLM are reportedly seeking a combined $6.5 billion of loan guarantees from the French and Dutch governments,” read a report by CAPA India.

The Government of Singapore, too, announced a support package in excess of $500 million for its aviation industry. The package includes a jobs support scheme “by which the government will subsidise 75% of salaries up to a certain threshold, to enable companies to maintain staff on their payrolls. In addition, there will be rebates on landing and parking charges and rental costs,” the CAPA India report stated. “In a very decisive show of support for the national carrier, the government investment arm, Temasek (which is the majority shareholder in Singapore Airlines) will support a $10 billion rights issue involving a combination of equity and mandatory convertible bonds. A bridging loan facility of $2.8 billion has also been secured,” it added.

The bailout packages are a clear indication of how bad the impact of the Covid-19 pandemic has been on airlines across the world. “Given the limited resources at the disposal of the Indian government it is likely that the relief package shall consist of waivers/deferment of airport related charges; extended credit period for dues to OMCs; and moratorium on liabilities,” read a research report by Prabhudas Lilladher.

With air passenger traffic demand unlikely to match pre-Covid levels in the near term, “in quest for survival we expect airlines to rationalise their fleet size/costs by seeking early return of aircraft; deferring deliveries of new aircraft; renegotiation lease rentals on existing aircraft; and workforce rationalisation,” the report added.

That said, in India, many airlines are planning social distancing measures like keeping every other seat empty. And this could bleed airlines further as they would struggle to meet cost of operations. “But most of all, airlines will not be able to regain their footing until public confidence to travel is back, and that is not expected until the fear of the virus itself dies down,” said an airline executive for a budget airline. “It is for all these reasons that government financial support is essential else the entire industry which drives 3% of the GDP, may collapse.”