Impact of COVID 19 on Civil Aviation Industry

The $880 billion global airline industry has been hit by Pandemic Corona virus COVID 19, described as the “biggest crisis in the history of aviation.” Headline such as “Airlines Could Lose $100+ Billion Due to Coronavirus“, “Demand has not declined; it has evaporated”, summaries. Entire countries are being closed off. The industry that has been clobbered hardest by the pandemic is the one which unknowingly helped spread it to the four corners of the Earth. Social distancing restrictions may make flying impractical, if not, impossible. Most governments are still grappling with the health challenges and currently have lesser instinct to look at airlines.

Some estimate that the annual air traffic reduction could be as high as 50 per cent.

This would mean idling airline assets and personnel. Many airlines were already making losses and most airlines have huge debt servicing requirements. Most have sent their crew on paid leave, and some have cut salaries. Even leasing firms, could be hurt if widespread insolvencies flood the market with second-hand aircraft, depressing leasing rates.

U.S. airlines directly employ 750,000 workers; the industry as a whole supports 10 million jobs. The way virus is currently spreading, the airline industry could suffer losses of up to $113 billion in 2020 alone. Massive layoffs, bankruptcies and airline shutdowns are likely. A Bangalore Aviation report of March 21, 2020 by Satyendra Pandey, compares the Gulf War (1990/91) only led to a 7-9% decline in passenger demand; the terrorist attacks of 9/11 led to a 12% decline and SARS in 2003 led to a 20% decline. The corona impact has led to a decline that is larger than all of these combined. There is intense lobbying for a global bailout packages for airlines in the range of $ 100 billion. 

Despite international oil prices at around $30 per barrel, India’s industry level, consolidated losses are estimated to be in the range of $500-600 million for the first quarter (excluding Air India). Around 30 percent of airline staff and up to 50 percent of ground handing staff would be rendered redundant. For aviation sector CII has sought an immediate 4 percent cut to the Value Added Tax levied by states on Aviation Turbine Fuel, and to bring it under GST regime to enable full input tax credit.

A Bangalore Aviation report of March 21, 2020 by Satyendra Pandey, compares the Gulf War (1990/91) only led to a 7-9% decline in passenger demand; the terrorist attacks of 9/11 led to a 12% decline and SARS in 2003 led to a 20% decline

Several hundred small, medium and large Indian firms manufacture or assemble aerospace components for major global OEMs. Boeing alone sourced over Rs 7,000 Crore worth of components and services in 2019 from over 200 Indian companies, similarly Airbus, sourced over Rs 4,500 Crore. COVID 19 disruptions affect both component orders and raw materials supply chains. 

The oil crisis of 1979 took three years before global traffic returned to pre-crisis levels; the Gulf-War impact took six months to dissipate, 9/11 took two years before global demand returned, and the global financial crisis of 2008 took six to nine months. Many airline bosses cling to the hope that global passenger numbers will follow the same trajectory as in the wake of previous disruptions and travel patterns revert. 

As infections are stabilising in China, passengers are getting back in the air, tempted by large discounts. Chinese airlines are mostly government-supported, so at least the majors will remain solvent. Countries with vast domestic market like China, USA and India may recover faster. There are enormous mutual interests in ensuring healthy airlines. The vital tourism and travel industry, which accounted for 20% of all new jobs in recent years, importantly in developing countries, has come to depend on a wide range of low fares and competition. Clearly there are more turbulent times ahead due COVID 19. Countries must pass bailouts to save the airlines that are normally considered “too big to fail.” 

This Article was first written for Defence and Security Alert (DSA)