More airlines will go out of business this year as the industry faces the loss of a further $38 billion, according to a new report.
The International Air Transport Association (IATA) calculates that airlines will lose $38.7 billion (€31.5 billion) in 2021, adding to the $118 billion they lost in 2020 when Covid-19 travel restrictions grounded most fleets.
A report published on Monday by accountants PWC Ireland warns there “will be more airline casualties ahead” while growth will be more challenging for those that survive.
In the Republic, Norwegian Air Shuttle and four Irish subsidiaries are under High Court protection from creditors, while a fifth company that was part of the process will be wound up as the group restructures.
Some of Europe's biggest carriers sought bailouts from their governments last year, including Germany's Lufthansa, which got a package totalling more than €9 billion.
The report notes that the “extraordinary” amounts of cash borrowed by airlines will permanently affect the industry’s finances.
“Airlines will need ongoing access to emergency liquidity, including government support, for the foreseeable future,” PWC predicts.
Dick Forsberg, author of the report and senior aviation finance consultant at PWC Ireland, predicts airlines will have to cut their fleets as there are too many aircraft in the world while the 4.5 billion passengers they carried before Covid will not return overnight.
“The crippling debt burden that is building across much of the airline industry will require root and branch restructuring in order to bring long-term solvency and profitability,” he says.
About 8,500 aircraft were idle at the end of last year; 5,000 of these may not be needed, the report estimates.
All this will increase pressure on lenders, aircraft lessors, which supply many of the airlines with aircraft, and on manufacturers.
PWC believes that as the crisis continues, the leasing business also faces a shake-up, with increased mergers and acquisitions likely.
The Republic is a key centre for leasing, with 14 of the 15 biggest players in the world based here, including Aercap, Avolon and SMBC Aviation Capital.
Lessors combine their own cash with debt to buy aircraft which they lease to airlines, using the rent collected to pay off the loans used to buy the planes.
Yvonne Thompson, aviation finance leader at PWC Ireland, predicts that despite the pressure the industry faces, it will return to growth. Aircraft leasing will survive, she says.
“We see both a variety of investors lining up in anticipation of securing value but also others who are absolutely committed to the sector,” she says.
