Aviation sector faces deep structural changes, no full recovery before 2023: Moody's

The impact of nationwide lockdown induced to combat the novel coronavirus has adversely affected the Aviation Sector. According to Moody's Investors Service, the air passenger demand will be critically depressed in 2021 globally and the Airline industry will not see a substantial recovery before 2023.

Major factors such as Health concerns, variations in corporate travel policies, possible restrictions on international arrivals and lower discretionary spending because of lower GDP and higher unemployment figures will restrain air passenger demand into 2022, Moody's said in its statement.

It is a challenging situation to forecast about the Air passenger demand in 2023 due to the uncertainty of the coronavirus pandemic.

"The industry will undergo substantial permanent structural changes. Potential for failures of weaker airlines and government intervention to leave fewer, larger companies, polarised between more efficient operators and strategic state-supported airlines," said Moody's.

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Moody's further said that most of the airlines have enhanced their liquidity at the cost of increasing debt burdens, however powerful airlines supported by the state have significantly improved liquidity since March. Airlines with high ratings have adequate liquidity to survive on average for about 450 days at current low activity levels. However, the situation can be difficult for the weaker airlines with insufficient liquidity if the grounding continues till next year that is 2021.

Moody's put forth two modelled situations expecting a recovery by 2023 or years after that. Its assumption stated that many airlines carry substantially more debt in 2023 and their faster and slower cases assume 2023 passenger volumes recover to around 95 per cent and 85 per cent of 2019 levels respectively. There will be more debt of about 20 to 30 per cent in 2023 as compared to 2019 with leverage on average 0.5x to 1.5x higher.

Further, Moody's downgraded 13 airlines since May 25 and confirmed six. In March it placed ratings for 22 airlines on review for downgrade. The adequacy of liquidity and the potential for individual companies to retire the debt incurred to restore credit metrics through 2023 were important considerations in resolving the reviews.

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The passengers boarding the flight may be affected by health screening and risks of denied boarding beyond the pandemic. Corporate travel is likely to be damaged by 2023. Governments may also require deeper carbon emissions reductions from airlines. Additionally, there can be more difficulties in the aviation sector especially in commercial aerospace manufacturers and suppliers, airports, travel distributors and airline service companies as jet fuel providers and aircraft lessors will also be deeply affected, Moody's said.

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(with inputs from ANI)