The Indian aviation industry is expected to report a net loss of Rs 21,000 crore in the current financial year (FY21) against a net loss of Rs 12,700 crore in FY20 due to lower revenues and high fixed costs, according to ICRA.
The industry’s debt level will increase to Rs 50,000 crore (excluding lease liabilities) over FY 2021-22 and the industry will require an additional funding of Rs 35,000 crore to 37,000 crore over FY21 to 23.
While some airlines have sufficient liquidity and financial support from a strong parentage which will help them sustain over the near term, there are other airlines which are already in financial stress and are now facing several issues.
Besides, said ICRA, even for the former, credit metrics and liquidity profile have deteriorated.
“In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and by way of equity infusion.”
The aviation industry’s capacity and passenger growth have been significantly impacted since the COVID-19 pandemic due to which the Ministry of Civil Aviation (MoCA) stopped international travel operations from March 23 and domestic operations from March 25.
After the initial recommencement of operations, the recovery in domestic passenger traffic has been rather subdued even though there is substantial sequential improvement.
In the first seven months of FY21, the domestic aviation industry has witnessed a year-on-year decline of 73 per cent in its capacity as measured by the available seat kilometres (ASKM).
Coupled with the restrictions on capacity deployment by the MoCA to contain the spread of the virus and various state-specific restrictions and quarantine regulations, this will result in 60 per cent decline in domestic capacity in FY2021.
From May to October, domestic passenger traffic was 1.64 crore against 8.25 crore in 7M FY20, marking a decline of 80.1 per cent.
ICRA expects FY21 to witness a year-on-year decline of 62 to 64 per cent in domestic passenger traffic.
Many airlines have already undertaken several cost rationalisation measures. These include salary cuts for their employees, including leave without-pay options and laying off pilots and crew members to cut costs.
Some airlines have also sought deferment in their lease rental payments. However, until the cash inflows improve, the airlines will require funding support to meet their expenses.
The credit profile of domestic airlines will thus weaken materially over the near term, said ICRA.
