Govt must step in to help local airlines

By RAHIMI YUNUS / Pic By MUHD AMIN NAHARUL

THE International Air Transport Association (IATA) has made an urgent call for governments in the Asia-Pacific region including Malaysia to quickly roll out an aviation-specific relief package to help local carriers.

IATA, which represents some 290 airlines comprising 82% of global air traffic, predicted the Asia-Pacific region will see passenger demand reducing by 37% this year with a revenue loss of US$88 billion (RM383 billion).

“While each country will see a varying impact on passenger demand, the net result is the same — their airlines are fighting for survival, they are facing a liquidity crisis and they will need financial relief urgently to sustain their businesses through this volatile situation,” IATA’s regional VP for Asia Pacific Conrad Clifford said in a statement last week.

IATA said airlines are expected to post a net loss of US$39 billion in the second quarter ending June 30, 2020 (2Q20), and the impact of that on cash burn will be amplified by a US$35 billion liability for potential ticket refunds.

Without relief, it said the industry’s cash position could deteriorate by US$61 billion in 2Q20.

IATA forecast that Malaysia could see passenger demand in 2020 reduced by 39% based on a scenario where severe restrictions on travel are lifted after three months and followed by gradual recovery.

The association said Cambodia (-34%), Vietnam (-34%) and the Philippines (-36%) will be on the lower end of the range in passenger change, while Thailand (-40%), Pakistan (-40%), Republic of Korea (-40%) and Sri Lanka (-44%) will see the largest impact.

For Malaysia, IATA views a possible reduction of over 25 million passenger demand, some US$3.3 billion revenue impact, close to 170,000 job losses and US$3.8 billion potential GDP impact.

Australia, New Zealand and Singapore have announced a substantial package of measures to support their aviation industry.

“But others in the region, including India, Indonesia, Japan, Malaysia, the Philippines, Republic of Korea, Sri Lanka and Thailand, have yet to take decisive and effective action. Jobs as well as the GDP supported by the industry are at risk,” Clifford said.

Australia has announced a A$715 million (RM1.89 billion) aid package comprising refunds and forward waivers on fuel taxes, domestic air navigation and regional aviation security charges.

New Zealand’s government offered a NZ$900 million (RM2.33 billion) loan facility to the national carrier as well as an additional NZ$600 million relief package for the aviation sector especially to ensure continuity in air freight capacity.

Singapore has undertaken relief measures valued at S$112 million (RM340.73 million) including rebates on airport charges, assistance to ground handling agents and rental rebates at Changi Airport.

Sobie Aviation Pte Ltd analyst and consultant Brendan Sobie told The Malaysian Reserve (TMR) that many countries have offered aviation-specific assistance, which recognises that the industry has special attention in order to survive the crisis.

AirAsia Group Bhd CEO Tan Sri Dr Tony Fernandes said in a Bloomberg TV interview that the low-cost carrier is in talks with the government for loans.

Regardless, Fernandes said the company does not need a “bailout”. AirAsia could extend losses to almost RM800 million this year, Nomura Securities Malaysia Sdn Bhd estimated.

However, AirAsia is expected to weather the crisis with a net cash balance of RM2.2 billion as of the financial year 2019, based on actual borrowings, without significantly deteriorating its balance sheet.

AirAsia’s long-haul sister company AirAsia X Bhd is said to likely be in dire need of a cash injection to stay a float.

Frost & Sullivan (M) Sdn Bhd MD Hazmi Yusof and its aerospace, defence and security associate director for Asia Pacific Amartya De said airlines have “no breathing space” with major losses in revenues — about 70% or more across Asia.

“Most airlines have their fleet on leases from major banks and financial institutions irrespective of whether they are low-cost or full-service airlines and if the banks are not allowing deferring those leasing costs then it becomes impossible to keep the operations alive and continue paying wages anything beyond a month or two,” they told TMR.

They said Kuala Lumpur International Airport (KLIA) and KLIA2 serve as essential connecting hubs for the region receiving traffic from South Asia, East Asia and the rest of the world, and a substantial portion of the Malaysian economy depends on tourism, international trade and business.

“Once the Covid-19 lockdown is over, these airlines will need capital to weather through this period in order to quickly ramp up operations to facilitate trade and travel,” they added.

The Malaysian government provides a RM50 billion credit scheme with a guarantee of up to 80% of the loan amount for the purpose of financing working capital requirements, managed by Danajamin Nasional Bhd under the RM250 billion stimulus package.

Hazmi and Amartya said the working capital grants at low-interest rates from Danajamin will enable airlines, maintenance, repair and overhaul, ground handling, catering, cabin crews and security, and every- one in the aviation ecosystem to survive.