Domestic aviation industry may incur losses of up to $3.6 billion in Q1: CAPA

The domestic aviation industry could incur losses of $3.3 billion to $3.6 billion in the first quarter of fiscal 2021 due to the coronavirus outbreak, CAPA, an aviation advisory, said on Wednesday.

CAPA estimates that domestic airlines could lose approximately $1.75 billion, airports and concessionaries between $1.5 and $ 1.75 billion, and ground handlers between $80 million and $90 million during the first quarter of fiscal 2021.

CAPA’s estimates are based on airlines being grounded till April 15, although currently the grounding is till March 31. CAPA feels the impact of Covid-19 will be so severe that even the stronger carriers may not be immune to it.

“In the event of a three-month shutdown, the two listed carriers alone – IndiGo and SpiceJet – could report combined losses of $1.25 to 1.50 billion across Q4 FY20 and Q1 FY21,” said CAPA, adding that IndiGo’s enviable free cash reserves may almost be wiped out and smaller carriers may be forced to exit.

According to the CAPA report on the financial impact of Covid 19 on Indian aviation, there is a strong likelihood of aircraft orders being deferred or even cancelled and of some of the leased equipment, particularly those of aircraft approaching the end of their lease terms, being returned early to lessors. The report further adds that Tata Sons may be strategically compelled to operate just one rather than two airlines (AirAsia India and Vistara).

Air India privatisation

Air India’s privatisation is unlikely to proceed in FY21 and may be postponed even further, the report says. While cautioning that these are indicative figures, the report says it is possible that both domestic and international traffic could decline by 30 to 50 per cent year-on-year in FY21.

CAPA recommends a three-stage support for the airline industry. In the first phase, it suggests a cash infusion to support part-payment of salaries up to a certain grade for 3 to 6 months so that redundancies can be averted. In the second phase, it suggests a moratorium on outstanding payments for three to six months for airport charges at all airports.

In the third phase, the report suggests bringing ATF under the GST framework, apart from providing a waiver of between three to six months on airport charges as and when the services resume.

The report suggests that in the third phase, “depending on the severity of the impact, the possibility of a direct cash injection by the government in the form of grants” should not be ruled out.