Coronavirus-hit domestic aviation industry requires a capital infusion of around $5 billion to keep it afloat as expected consolidated industry losses may stand at $6-6.5 billion this fiscal, an aviation consultancy and advisory firm has said. However, structural issues, including the prevailing uncertainty, are unlikely to help them take advantage of the low crude prices and excess liquidity both globally and in India, and raise these funds, according to a presentation by the Centre for Asia Pacific Aviation (CAPA).
Aviation companies including in India are facing headwinds with many international airlines either going belly up or in administration for want of liquidity amid slump in air travel demand and continued curbs on visa and movement restrictions owing to the coronavirus pandemic.
Budget carrier IndiGo, which is one of the two listed airlines along with SpiceJet in India, reported its highest ever quarterly loss at Rs 2,844 crore in the April-June quarter while SpiceJet has not yet announced its June quarter results.
"COVID-19 will inflict an unprecedented financial impact on the industry. Airlines are the most vulnerable, with some carriers at breaking point," CAPA said.
According to it, the consolidated industry losses are likely to stand at around $6-6.5 billion in FY2021, excluding airport concessionaires and other ancillary sectors, and an estimated $4.5-5 billion of funding will be required to overcome this crisis, mostly for airlines.
Noting that barring IndiGo, which had a cash reserve of $1.36 billion at the end of March 31, 2020, the liquidity available with the industry at the end of the previous fiscal was just $200 million.
"It is clear that the industry cannot absorb such losses alone (and) industry and government collaboration is essential for (its) survival and revival," CAPA said.
The IndiGo board has already approved its plans to raise up to Rs 4,000 crore through share sales to institutional investors to tide over the depleting finances due to COVID-19 situation.
According to CAPA, apart from capital infusion from the promoters themselves, who need to take the first step, the government and banks also need to work together, adding that both airline and airport promoters (especially airline promoters) must present a well-thought recapitalisation plans to fully fund this and the next fiscal if they are to emerge from this crisis.
While airlines, which are likely to suffer losses to the tune of up to $4.5 billion would need cash infusion of up to $3.5 billion, airports are expected to suffer losses of up to $1.5 billion, CAPA said.
"For example, CAPA estimates that SpiceJet could raise $250-300 million against pending sales-and-leaseback (SLB) dues, OEM compensation, SLBs due in FY22 and by selling and leasing back Q400s, (and) other airlines could similarly raise capital in this way,” it stated.
The industry also needs to implement all possible measures to counter the demand and revenue challenge through cost reduction, fleet replacement, among others, as per CAPA.
Continuing uncertainty with respect to state-by-state quarantine restrictions and the persistent shadow of the possibility of new lockdowns, exacerbates underlying demand risks, it said adding limited hotel capacity and surface transport options further deter travel.
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