Some airlines in India can shut down due to lack of cash if the government does not intervene, aviation consultancy firm Centre for Asia Pacific Aviation (CAPA) has warned.
The situation is worrisome as Indian carriers
saw a 12-15 percent dip in yields during the first two weeks of March and this may fall by 25 percent or more in the near term, CAPA said in the first update on the impact of coronavirus on India aviation market. Forward bookings are down by more than 30 percent too, indicating dark clouds for the Indian aviation industry.
While airlines in India may initially ground 150 planes due to COVID-19 situation, they may be forced to ground the majority of their fleet by April if demand continues to decline, CAPA
As per initial estimates, consolidated losses for all airlines in India, except Air India, in Q1 are expected at $500-600 million but this is bound to be revised downwards later.
The unprecedented lack of demand to travel due to travel advisories and visa restrictions over the spread of coronavirus has resulted in a shock which will be far deeper and much longer than what the world saw in 2008, CAPA added.
As most of the international sectors are already closed due to government advisories to prevent the spread of deadly coronavirus, the International capacity of Indian airlines has fallen by 60-70 percent on the year and could approach a state of suspense.
"Airlines will seek to adjust aircraft deliveries scheduled for Q1 and may cancel some orders. Indian carriers have 50 aircraft due for induction between now and 30 June 2020. But delaying deliveries may impact the liquidity of some carriers that are reliant on sale-and-leaseback margins on aircraft inductions to generate cash. And the availability of financing for deliveries may also be compromised," CAPA said.
The privatisation drive of Air India can also be impacted due to the ongoing disruptive situation and the government may have to provide immediate interim funding of $300-400 million to keep the state airline running.
CAPA has suggested that the government should look at bringing ATF under the GST regime, revise Jet fuel prices on a weekly basis, implement a short-term moratorium, extend credit terms for payments and banks may look at extending working capital loans secured against future sales or sale-and- leaseback incentives.
"Regardless of any fiscal concessions and support that the government may offer, most airlines will have to shrink their operations, and the more vulnerable carriers may shutdown," CAPA reiterated.