African airlines are staring at bankruptcy if their liquidity crisis is not addressed with urgency, a new survey has shown.
The survey by The Economic Commission for Africa (ECA) and the African Airlines Association (AFRAA) reveals that Indeed, a number of airlines around the world are already insolvent.
In Africa, for instance, Air Mauritius has entered into administration. But the report dubbed Policy research paper Covid-19 and African airlines overcoming a liquidity crisis’ also observes that some carriers on the continent were already struggling prior to the spread of COVID-19.
South Africa is the worst-hit country in the continent in the air travel business so far with a loss of $3,020 followed by Nigeria losing $994 and Ethiopia has lost $430 due to disruptions caused by Covid-19 pandemic.
Given the importance of air transport to economic development and job creation, many countries have bailed out their ailing carriers. For example, the German Government has provided a bailout package of 9 billion euros to Lufthansa. In the United States of America, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is a stimulus bill that includes a $61 billion relief package for United States airlines.
Unlike in Africa, governments in other parts of the world have provided relief packages for their airlines,
including direct support, loans and loan guarantees, issue of equity, and waving of rents, among others. In addition, the European Union Commission has put forward proposals that include relaxation of the air carrier licensing rules in the event of financial distress caused by COVID-19, and a simplification of the procedure regarding the restriction of traffic rights.
“While there are various COVID-19 support initiatives in Africa, at both national and regional levels, airlines
on the continent have generally received no direct financial support from their governments, unlike
those in the United States of America and Europe,” the report reads in part.
Out of 16 airlines that responded to the ECA-AFRAA survey, 15 provided information on their indebtedness in 2020 and 2021. The total aggregated debt of the airlines for the two years amounts to $3.2 billion. There are significant differences in the debt level of the airlines, which indicates their heterogeneity in terms of size and ambition.
For instance, the financial commitments of three airlines overshadow those of the others. These three have aggregated debt, respectively, of $1.8 billion, representing 56.3 per cent of the total commitment of the 15 airlines that provided the required information; $423 million, or 13.2 per cent of the total commitment; and $399 million, or 12.5 per cent of the total commitment.
Each of the other airlines have commitments of less than $100 million. It is a big challenge for the airlines to meet these commitments in addition to their operational expenses at a time when they have incurred heavy revenue losses due to the collapse of passenger flights. It is therefore not surprising that expansion plans involving the purchase of aircraft have been put on hold.
The report recommends that governments and airlines to optimize the use of development finance institutions such as the Africa Development Bank to stay afloat even as the future remains uncertain.