Home Business Bankruptcy looms as Africa airlines take pandemic nosedive

Bankruptcy looms as Africa airlines take pandemic nosedive

Shipping & Logistics

Bankruptcy looms as Africa airlines take pandemic nosedive


The airline industry faces its gravest crisis. FILE PHOTO | NMG

Kenya is the third worst-hit country in the continent in the air travel business after Nigeria and South Africa by disruptions caused by Covid-19 pandemic.

A new report by the African Airlines Association and the Economic Commission for Africa (ECA) shows that Kenya has so far lost Sh73.2 billion. Nigeria lost Sh99.4 billion and South Africa Sh302 billion.

The report notes that many African airlines risk closing down due to liquidity crisis caused by the pandemic which worsened their indebtedness to banks, aircraft lessors and manufacturers, and which has left them running on survival mode.

The carriers are forecast to lose more than Sh600 billion in revenues and drop their overall contribution to GDP by more than Sh2.8 trillion with at least 3.1 million jobs being lost in 2020 and 2021.

The report details how deep the Covid-19 dive has been for the airlines, noting that travel curbs and border closures across the world have left bottomless financial holes that the carriers cannot come out of on their own.

“Airlines have grounded their aircraft leading to a liquidity crisis with implications for debt repayment, leases and remuneration of staff, refunds to passengers for cancelled flights, and maintenance of aircraft, among other financial requirements,” the report states.

In terms of the employment risk, Ethiopians and Tanzanians are the most hit in the air transport sector that supports seven million jobs and contributes Sh7 trillion to the continent’s economy.

Top on the list of those likely to lose their jobs are 500,521 Ethiopians, 336,182 Tanzanians and 193,342 Kenyans, the report notes. Many airlines have had to fire staff, cut their salaries or send them on unpaid leaves to survive the pandemic.

Prior to the Covid-19 crisis, Africa had about 76.6 million annual air travellers, with the numbers projected to hit 303 million by 2035.

But with the virus disruptions, flight departures declined by 95 per cent by April last year compared to a global decline of 78 per cent.

“The fast-eroding liquidity of airlines threatens their very existence. It puts them at risk of insolvency, underscoring the need for urgent financial support, in particular, direct cash injections, to overcome the crisis. Such support is necessary to ensure that airlines are able to restart operations as countries gradually reopen their economies and borders,” reads the report.

Grim state

The survey was conducted on 16 airlines that dominate air travel in the continent, although their names were not disclosed. 15 of them provided information on their indebtedness, painting a grim picture of near-collapse.

Many of airlines are unable or struggling to service debts owed to banks and other financial institutions (about Sh150 billion), leasing companies (about Sh120 billion) and aircraft manufacturers (about Sh50 billion).

“The bigger airlines in this survey are more indebted to banks and financial institutions than to leasing companies, while the smaller airlines, which constitute the majority, are more indebted to leasing companies. Only 20 per cent of the airlines have higher debt to aircraft manufacturers than to the other two categories of creditors,” the report states.

The total aggregated debt for 2020 and 2021 has accumulated to more than Sh320 billion ($3.2 billion), the report indicates.

Industry players warn that airlines may fail to meet repayment commitments to their creditors, even as they currently struggle with operational costs and refunding passengers on cancelled flights. The impacts have come at the cost as many airlines have been forced to put on hold their expansion plans.

Last year, International Air Travel Association (IATA) projected that African airlines would lose more than Sh600 billion in revenue as a result of Covid-19. This, the report says, would make it even more difficult for the airlines to service the debts while continuing to operate.

“The appeal by key organisations in the travel and tourism sectors for $10 billion in support, in addition to the $25 billion advocated by the African Union Commission-AFCAC task force for the recovery of the aviation industry from Covid-19, would seem consistent with the financial requirements of airlines and the aviation industry in general,” the study says.

The report also notes that some of the continent’s airlines were already struggling even before the onset of Covid-19 and their performance was only worsened. It says that the liquidity crisis facing airlines ought to be treated with urgency, before airlines start closing down.

“Airlines face bankruptcy if their liquidity crisis is not addressed with urgency. Indeed, a number of airlines around the world are already insolvent. In Africa, for instance, Air Mauritius has entered into administration,” it states.

The players fault African governments for lacking stimulus packages targeted at the air travel industry specifically, arguing that the neglect is likely to come at a cost to the continent’s economy.

Among the countries highlighted to have provided fiscal support packages for their airlines include Senegal, Seychelles, South Africa and Cote d’Ivoire. The support involved relief package, waivers on landing and parking fees and waivers on tourism tax.

Airlines want tailored financial support to the specific features of their operations, to be allocated a portion of Covid-19 relief packages, coordinated engagements with development finance institutions and business opportunities created for them.

Source link