Airlines in India are again under pressure to raise cash or face the risk of cutting, consolidating or returning their planes to lessors due to the surge in COVID-19 infections.
Passenger traffic fell nearly 30% in April from the previous month and fell in half again in May, forcing even the country’s largest and most cash-out carrier, IndiGo, to take action.
IndiGo’s parent company, Interglobe Aviation (INGL.NS), gathered on Friday to discuss raising capital, just months after scrapping plans to raise up to Rs 40 billion ($ 543 million) in January in response to quick recovery in the travel industry.
InterGlobe’s board has decided to continue exploring all options for increasing liquidity, including by selling shares to institutional investors, the company said on the stock exchange.
With a sharp drop in traffic, IndiGo’s spending is expected to rise to $ 3.4 million a day – a level last seen in September – from $ 2 million a day at the end of 2020, according to the aviation ministry, said an analyst tracking activity of the company.
This means that IndiGo, which accounts for more than 50% of the market, could try to raise $ 543 million to $ 679 million, which is at least two quarters of cash spent, said the analyst, who declined to give his name because he was not. authorized to do so. speak publicly.
While IndiGo is considered a survivor, the situation is worse for smaller operators, especially those without major sponsors, some of whom fought before the novel coronavirus hit, analysts say.
“India has not provided much government aid or support, so private airlines will have to turn to the private sector,” said independent aviation analyst Brendan Soby.
The cash demand came as Indian carriers are expected to report total losses of $ 4-4.5 billion in the fiscal year ending March 31 and will lose a similar amount this year, the consulting company said. CAPA India this week.
Analysts estimate that with more people losing loved ones growing, and worsening outlooks for the economy, jobs and income, the recovery in domestic travel that was expected by the end of 2021 may not occur until the first quarter of 2022.
To make matters worse, several countries, including the UK and the United States, with which India has bilateral agreements to operate charter flights, have restricted arrivals due to high levels of contamination.
The charters offered local carriers a lucrative stream of revenue after the Indian government closed scheduled international flights when the pandemic struck. International traffic is not expected to recover to pre-COVID levels until 2024, according to CAPA.
LESSERS LESS FORGIVENESS
Analysts say smaller carriers such as SpiceJet Ltd (SPJT.NS) and privately held GoAir may be under pressure to cut capacity, seek partnerships or consolidate, especially as aircraft lessors are taking a more assertive stance. read more
SpiceJet said its passenger and cargo business generates sufficient cash flows to cover operating costs.
An airline spokesman said the airline is in talks with creditors to pay off debt and private investors for further capitalization, adding that it also expects compensation due from Boeing (BA.N) for the 737-MAX aircraft to support its finances.
CAPA expects 250-300 aircraft to stop in the first half of this fiscal year, while lessors may not be as patient as last year in allowing deferred payments, air travel is now resuming in places like the US and China.
“The demand for planes is greater right now and they would rather recover assets than allow airlines to use them for free and devalue them,” said Sanjeev Kapoor, former commercial director of India’s Vistara airline.
Debt forgiveness is also unlikely.
“Landlords are unanimous that they are not writing off airlines’ debts, and that will not change as some of them are also under serious threat of bankruptcy,” said Shukor Yusof, head of aviation consulting firm Endau Analytics.
GoAir plans to raise up to Rs 25 billion through an initial public offering, local media reported in March, although as the COVID-19 situation worsens, the attractiveness to investors is becoming less evident.
GoAir did not respond to a request for comment.
While IndiGo, which received 44 new aircraft from Airbus (AIR.PA) last year, did not delay lease payments, SpiceJet missed payments even before COVID-19 hit, according to sources in the leasing industry and financial statements say that it was late payments during the crisis. read more
Payments to lessors have always been made on agreed terms prior to COVID and are currently, a SpiceJet spokesman said, adding that any return aircraft is either scheduled or mutually agreed based on market forecasts.
Any carriers that have had their planes seized could run into trouble as the market grows. While CAPA says consolidation is imminent, potentially leading to a system of two to three airlines, other analysts say it is too early to predict the outcome.
“We hope this will be a temporary setback for all airlines. We will need to see if all the players can weather the storm, ”Sobi said.
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