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Indian carriers, except IndiGo, need to raise $2.5 bln to survive grounding

Airlines are currently grounded and airport operations halted since 25 March due to the lockdown to contain covid-19 pandemic (Photo: Mint)Premium
Airlines are currently grounded and airport operations halted since 25 March due to the lockdown to contain covid-19 pandemic (Photo: Mint)

  • IndiGo is well-placed in terms of cash reserves ($1.13 billion of free cash and $1.33 billion of restricted cash) compared with other Indian carriers, CAPA said
  • The $2.5 billion fresh capital infusion for airlines will only be sufficient for them to survive until the market starts to turn around, and additional funds could be required for recovery

NEW DELHI: Indian airlines, excluding market leader IndiGo, will need to raise a minimum of $2.5 billion to survive the grounding due to the lockdown imposed to contain covid-19 pandemic, aviation consultancy firm CAPA India said in a report on Friday.

"IndiGo is well-placed in terms of cash reserves ($1.13 billion of free cash and $1.33 billion of restricted cash) compared with other Indian carriers. However, it too is not immune to risks in the event of a prolonged crisis," CAPA India said in its latest report-- Indian aviation faces massive disruption on the road out of COVID.

It said the $2.5 billion fresh capital infusion for airlines will only be sufficient for them to survive until the market starts to turn around, and additional funds could be required for recovery.

"Much will depend upon factors such as the state of the economy and the timing of any vaccine or cure," the report said.

Meanwhile, if an imminent Supreme Court ruling on passenger refunds goes against the airlines it could trigger the need to fund $300 million of domestic refunds, which will be challenging for airlines, it added.

The Supreme Court had on 27 April issued a notice to Ministry of Civil Aviation on pleas seeking full refund against the tickets booked for travel during the covid-19 lockdown. The plea accused airlines of violating aviation ministry’s 16 April order to refund full amount, without imposing cancellation charges, to those who booked tickets during the first phase of lockdown from 25 March to 14 April for travel between 25 March and 3 May.

Airlines are currently grounded and airport operations halted since 25 March due to the government-imposed lockdown to contain covid-19 pandemic, which has claimed thousands of lives globally. As things stand, a countrywide lockdown has been implemented till 3 May.

In its latest report, CAPA India said that social distancing and inspection protocols issued by the Bureau of Civil Aviation Security (BCAS) will seriously impact the ability of airlines to even recover their variable costs.

"The implication of this is that on a 180-seat narrow-body aircraft, an airline can sell at maximum 108 seats, representing a 60% load factor. Even if social distancing is not in place, demand conditions are expected to be so weak that passenger loads are in any case

unlikely to be any higher than that. This will naturally increase the average break-even fare," it said.

"Some carriers may lose less money by remaining grounded," it added.

Meanwhile, CAPA India has revised downward its air traffic estimates for financial year 2021 to 55-70 million domestic passengers and 20-27 million international passengers.

"The combination of the monsoon quarter, fragile economic conditions and lingering passenger fears about the safety of travel, could prove to be a devastating cocktail for airlines," it added.

According to the latest estimates by industry lobby group International Air Transport Assosiation (IATA), Indian airlines are likely to suffer a revenue loss of $11.2 billion due to grounding of their operations as a result of the lockdown to contain covid-19. Passenger demand is expected to fall 47% annually, while millions of aviation jobs will be at risk.

Recovery will not be easy and will require critical strategic decisions to be taken by the industry and government, CAPA India said in its report.

"The financial and operational challenges associated with the resumption of services are potentially so significant, that some carriers may choose to remain grounded, whilst others may not survive," it added.


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