The Indian government is planning to bailout the country’s aviation sector by giving it a bailout package of $1.6 bn, reported Reuters. This comes after the sector has suffered a beating due to the coronavirus pandemic — with passengers counts drastically dropping, countries shutting borders and social distancing being advised.
The Reuters report stated that the proposal could include a temporary suspension of the levy of taxes levied on the sector. Multiple airlines have halted international operations and have curtailed flights, due to a precipitous drop in occupancy. They have also waived rescheduling and cancellation charges amidst the coronavirus pandemic.
This comes after GoAir announced that it has terminated contracts of expat pilots amid curtailed operations due to the pandemic. The airline also put a short-term rotational leave without pay programme in place. This, it said "will not only help the company counter the short-term reduction in capacity, but will also ensure that a cross section of employees stay away from the workplace for a month at a time to ensure business continuity."
On Thursday, IndiGo CEO Ronojoy Dutta announced that the airline was instituting pay cuts for senior employees and he would himself take the highest cut of 25%. "With the precipitous drop in revenues, the very survival of the airline industry is now at stake," Dutta said in his email to employees. "We have to pay careful attention to our cash flow so that we do not run out of cash."
All Indian airlines will report significant losses in the first quarter of this year and may initially ground around 150 planes as the shock from the coronavirus pandemic will be "far deeper and much longer", a report by industry body Centre for Aviation (CAPA) said. Consolidated losses are estimated to be in the range of USD 500-600 million for the quarter, excluding Air India, the report added.
In a report, it said that some airlines may choose to temporarily shut down their operations by design on the basis that demand is so low that such action would result in reduced losses than if they continue to operate.
As per the report, even before COVID-19 (coronavirus) appeared on the scene, most Indian carriers already had very strained balance sheets and almost no liquidity.
"This latest shock will once again expose the vulnerability of India's aviation system as happened during the fuel price spike in 2008. But on that occasion the shock was short-lived, even if its impact reverberated for several years. This time, the shock itself will be far deeper and much longer," it said.
At present, the combined fleet of six major domestic carriers stands at around 650 planes.
"If the decline in traffic continues to be severe, the majority of the fleet could be grounded by April," it noted.
While noting that it does not want to be "alarmist," CAPA India said the situation continues to deteriorate.
CAPA India noted that all Indian airlines would report significant losses in the first quarter even with oil prices at around USD 30 per barrel. "At an industry level, consolidated losses are estimated to be in the range of USD 500-600 mn for the quarter (excluding Air India). However, these are very preliminary estimates and are subject to further downward revision.
"In the absence of serious and meaningful government intervention, such an outcome could lead to several Indian airlines shutting down operations by May or June due to a lack of cash," it said.
Further, the report flagged the possibility of retrenchments in the domestic airlines industry.
Reduced scale of operations could impact the requirement for around 30% of airline staff and up to 50% of ground handling staff. For the first couple of months, this could potentially be handled through mandatory leave and leave-without-pay initiatives for 1-2 months. But should the situation continue beyond a few weeks, it would quickly result in short-term retrenchment, it added.
"... an extended downturn will inevitably lead to significant redundancies," it added.
In case the severity of the coronavirus outbreak increases, CAPA India said that regardless of any fiscal concessions and support that the government might offer, most airlines would have to shrink their operations, and the more vulnerable carriers may shutdown.
Further, the report said that yield in the first two weeks of this month are down by 12-15%, and could deteriorate by 25% or more in the coming weeks. Generally, yield refers to average fare paid per passenger.
On Thursday, the International Air Transport Association, a trade association of airlines, said that up to $200 billion is needed to rescue the world's airlines during the coronavirus crisis.
Governments must be aware that the public health emergency has now become a catastrophe for economies and for aviation," said IATA chief Alexandre de Juniac. He pointed out that "the scale of the current industry crisis is much worse and far more widespread than 9/11, SARS or the 2008 global financial crisis."
"Due to flight bans as well as international and regional travel restrictions, airlines' revenues are plummeting (and) outstripping the scope of even the most drastic cost containment measures," it said.
IATA called on governments to provide support in various ways, including through direct financial aid to passenger and cargo carriers, loans and loan guarantees and tax relief.
Earlier last week, CAPA warned that most airlines would be bankrupt by May-end.
With inputs from PTI