Average airline cash reserves warn of impending crisis
Despite the best efforts of governments to grant aid to a struggling aviation industry, a cash crisis is still looming, the International Air Transport Association (IATA) warned.
According to IATA’s data, on average, airlines have a reserve of 8.5 months of cash, which includes cash and cash equivalents as of June 30, 2020, as well as the predicted cash burn levels throughout the rest of the year. The industry body anticipates that the industry will burn $77 billion in H2 2020, which equals to $13 billion per month and $300,000 per minute.
“Historically, cash generated during the peak summer season helps to support airlines through the leaner winter months,” stated chief executive of IATA Alexandre de Juniac. The disastrous spring and summer of 2020 has not provided any cushion whatsoever, he added. “And with no timetable for governments to reopen borders without travel-killing quarantines, we cannot rely on a year-end holiday season bounce to provide a bit of extra cash to tide us over until the spring.”
The association estimated that airlines received over $160 billion of state-aid in various forms, including wage subsidies, tax cuts, and fuel charges. At the same time, Q2 2020 cash burn rate reached its peak, whereupon air transport companies slashed their reserves by $51 billion.
“The potential for failures and job losses in the coming months is enormous,” noted de Juniac.
The cash burn rate is particularly alarming because airlines have been on a massive cost-cutting quest for the past few months. Fleets were minimized, aircraft were put to storage, employees were fired or furloughed. Even so, IATA predicts that the industry will turn cash-positive only in 2022.
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