Moody's: "Aviation Industry Will Run Out of Cash in 450 Days"

Before 2023, when demand recovers to pre-COVID-19 levels

Practically a death sentence

[Asia Economy Reporter Kwon Jaehee] There is a forecast that even airlines with investment-grade credit ratings (B grade or higher) will exhaust all their cash holdings by the second half of next year. It will take another 3 to 4 years for air travel demand to recover to the levels before the COVID-19 pandemic, meaning airlines are effectively receiving a 'death sentence' before even experiencing recovery. Even if airlines survive until 2023, the increasing debt burden darkens their outlook further.

According to a recent report on the airline industry by Moody's, the cash reserves of airlines with investment-grade ratings or those receiving government support are expected to run out in an average of 450 days. Companies with Baa ratings, which correspond to investment-grade, can last about 575 days, while those with Ba and B ratings, which are speculative grades, can endure approximately 500 days and 300 days respectively. This includes airlines whose liquidity has significantly improved due to government support, such as Air France and Lufthansa. Previously, the French government announced plans to provide 15 billion euros in public funds to Air France and aircraft manufacturer Airbus, while the German government announced a 9 billion euro support plan for Lufthansa.

The situation is even more difficult for low-cost carriers with high debt levels before the COVID-19 crisis or those that have not received government support. Moody's forecasts that companies with credit ratings below Caa1, which are non-investment grade, will run out of cash after 150 days. Representative examples include Brazil's Azul Airlines and LATAM Airlines, which recently filed for bankruptcy protection.

Even in 2023, when air travel demand is expected to recover to 2019 levels, the debt burden is expected to remain. Moody's projects that global air travel demand will recover to 85-95% of 2019 levels by 2023. However, during this process, intense competition due to aggressive marketing such as fare reductions among airlines will increase the debt burden. There are also forecasts that losses in the airline industry could reach $100 billion in 2021 due to discount competition among airlines.

Moody's analyzed, "By 2023, the airline industry will have an additional 20-30% debt on average compared to 2019," and "leverage ratios will also increase by an average of 0.5 to 1.5 times."

Alexandre de Juniac, Secretary General of the International Air Transport Association (IATA), stated, "Airlines will incur losses of $230 million daily this year," and "even after 2021, airlines will remain financially vulnerable."

Going forward, the airline industry is expected to be divided depending on liquidity improvement. In this regard, China Express, a Chinese national airline, recently announced the purchase of 100 passenger aircraft from COMAC, a Chinese state-owned enterprise and aircraft manufacturer.

Moody's predicted, "Only two types of airlines will survive: large airlines receiving government support and airlines that operate efficiently to reduce costs."

This content was produced with the assistance of AI translation services.