The International Air Transport Association (IATA) has stated that the airline industry could be facing a global debt of $550 billion by year-end, a $120 billion increase over debt levels at the start of the year.
IATA said in a press release that $67 billion of the new debt is composed of government loans ($50 billion) deferred taxes ($5 billion), and loan guarantees of $12 billion.
Additionally, $52 billion would be from commercial sources including commercial loans of $23 billion, capital market debt worth $18 billion, and debt from new operating leases amounting to $5 billion as well as accessing existing credit facilities worth $6 billion.
“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,” said Alexandre de Juniac, IATA’s director general and chief executive officer.
According to IATA, governments have committed to a total of $123 billion in financial aid to airlines, in which $67 billion will need to be repaid. The balance, de Juniac says will largely consists of wage subsidies, equity financing and tax relief.
In Asia-Pacific, governments have pledged a total of 10 percent of 2019’s total revenue in the form of aid.
“This is vital for airlines will burn through an estimated $60 billion of cash in second quarter of 2020 alone,” he said.
The director general further highlighted that the kind of aid provided will influence the speed and strength of the recovery of the industry. The Association has urged governments to help airlines raise equity financing.
“Many airlines are still in desperate need of a financial lifeline. For those governments that have not yet acted, the message is that helping airlines raise equity levels with a focus on grants and subsidies will place them in a stronger position for the recovery,” said de Juniac.