COVID-19 outbreak: Aviation sector buckles up for turbulent times

The coronavirus is taking a toll on economic activity around the world pushing central banks and governments to announce support and stimulus packages. The US Federal Reserve has been the most aggressive announcing stimulus packages clocking up over USD 2 trillion.

India has so far announced a fiscal package worth Rs 1.76 lakh crore, coupled with liquidity measure to the tune of Rs 3 lakh crore announced by the Reserve Bank of India (RBI). With the 21-days lockdown bringing all business activity to a grinding halt, every industry is lining up at the government's door with a wishlist.

The aviation industry is no different. While things for the sector were tough even before the closure of airspace following the lockdown, the current crisis has only exacerbated the pain. All companies have announced pay cuts across the board, and with no clarity on the resumption of operations, harsher action maybe on the anvil.

CNBC-TV18 has learnt that an economic support package is under active consideration and airlines may also be beneficiaries of the same. Stocks of airline companies rose this week in anticipation of that. Kapil Kaul, CEO, South Asia at Centre for Asia Pacific Aviation (CAPA), and Devesh Agarwal of Bangalore Aviation discussed what support airlines should get and should the government bail them out.

When asked about aviation sector’s wishlist and if the government’s way of bailing out the sector is appropriate going forward, Agarwal replied, “The monthly released rental of most of the airlines is about Rs 10,000 crore and the capital or the networth of the promoters of these airlines – not including the Tatas – is about Rs 85,000 crore. So bailout should be the support of last choice. We have to get promoters to say, you need to put in more money into your own company. The cash balances are almost Rs 12,000 crore. It is not that the airlines are sitting on the zero cash.”

In terms of promoters infusing equity, Kaul said, “I don’t agree with Devesh Agarwal’s figures. If we include IndiGo and possibly Tatas, who may have the ability to infuse long-term steady flow of capital, IndiGo has the ability, they have cash of about Rs 10,000 crore, they can deep into their other cash reserves they have to overcome if this gets prolonged. However, the state of the industry prior to COVID-19 was dismal. They didn’t have cash for a day. So if the government decides that the airline industry needs to be saved, I don’t think there is any other option - I think the government will have to intervene. If they have to save the airline industry, I think that the bailout package has to be strategic.”