COVID-19 should not end revival of national airline
Just after the twin towers were hit on 9/11, many were those who assumed the aviation industry will never bounce back. The fortunes of the once booming industry took a nose dive.
The stock markets sharply reacted, falling to their lowest for weeks unend. The unexpected incident kicked in new investments in airports across the world in terms of security among many other things.
As the aviation industry became attractive again, it revived the dream of the government to bring back Ghana’s airline to light the skies once again. But just when the government was working frantically to close deals to revive the fortunes of national airline, COVID-19 struck, leaving the entire aviation industry in shambles.
We had all yearned to have the national airline back in the air to fly the national colours. That endeavour was also meant to give British Airways, which plies the Accra, London route; Delta Airlines on the Accra, New York route and South African Airways on the Accra, Washington route, some stiff competition and a run for their money.
Experts have said that, considering the large number of passengers that travel on those routes, Ghana is better placed to fly its own airline, putting the past of Ghana Airways and Ghana International Airlines, behind it for a fresh start.
But just before that full plan was sealed, COVID reared its ugly head, sending the plan for that revival back onto the shelves. But could the delay be a good omen for Ghana? It seems so because it could have been unimaginable, the money that would have gone down the drain today as more airlines continue to wallow in debt with some filing for bankruptcy.
Airline industry debt swells
To paint a clearer picture about the developments in the aviation industry regarding the debt overhang, the International Air Transport Association (IATA) released a report last week 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.
• $67 billion of the new debt is composed of government loans ($50 billion), deferred taxes ($5 billion) and loan guarantees ($12 billion).
• $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).
According to IATA, 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 per cent increase.
IATA’s Director General and CEO, Mr Alexandre de Juniac said “Governments 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.”
In total, 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 per cent 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,” said de Juniac.
Regional variations
The $123 billion in government financial aid is equal to 14 per cent of 2019’s total airline revenues ($838 billion). The regional variations of the aid dispersion indicate that there are gaps that will need to be filled.
In Africa, the Middle East and Latin America, average aid is around one per cent of 2019’s revenues.
Mr Juniac believes that meaningful financial aid to airlines now makes economic sense. It will ensure that they are ready to provide job-supporting connectivity as economies re-open.
Way forward
The kind of aid provided by governments will influence the speed and strength of the recovery. IATA subsequently, urged governments still contemplating financial relief to focus on measures that help airlines to raise equity financing.
Ghana, luckily is not in the bracket as far as this conversation is concerned. However, it is expected that these developments will allow the sector ministry to sit back and restrategise. There is ample time for it to do so and come out with its best foot forward.
Ghanaians do not expect the government to go to sleep on the deal it started brokering to have a national airline like its peers in the sub-region. This is the time to review existing deals. Its time to properly cross the ts among other things so that just when the storm is over, an airline for Ghana will be launched to be a part of the new global aviation industry which will definitely bounce back in style.
