Worldwide, economies have been hard hit by the COVID 19 pandemic. The aviation industry is no exception. According to the African Airlines Association (AFRAA), in 2020 alone, airlines in Africa combined lost US$10,2 billion in revenue. In their report, AFRAA said there was a 63.7% fall in total passenger number from 95 million in 2019 to 34.7 million in 2020.
Capital Market Investors predict more airlines will be bailed out by governments. The capital markets report, titled Navigating CovExit: searching for value in the debt markets, commissioned by Ocorian, a global leader in capital markets, fund administration and corporate and fiduciary services, three quarters (74%) of respondents believe governments will carry on helping national carriers despite the controversy surrounding state bailouts.
After months of uncertainy and entrance into business rescue, the South African gvt rescued the South African Airways last year. Finance Minister, Tito Mboweni gave the nod to 10.5 billion rand ($641 million) after a lengthy search for an investor turned fruitless. Fortunately, in March 2021, the State reported that it had gone into partnership with Takatso Consortium, whilst government maintains 49%. The government further commented that they will no longer be funding SAA. According to their treasury document, SAA had lost 32 billion rand since 2008.
The Ivorian government gave 14 billion CFA francs ($25.7 million) to Air Cote d’Ivoire to help cope with the COVID 19 pandemic. In Dakar, the State allocated €68 million ($81.9 million)to national airline Air Senegal which is 100% state owned.
However, despite government intervention, many airlines scaled down. Kenya Airways trimmed business trips across the continent to a minimum. Air Namibia ceased operations in February and filed for bankruptcy. AFRAA says turnover for the continent decreased by US $8 billion. Its secretary General, Abderrahmane Berthe commented, “We know that 2021 will also be a challenging year….unfortunately the support we have asked governments and other donors to provide is only coming in very slowly “.
From Ocorian’s study, as demand for aircraft rebounds, private equity funds are likely to extend their presence in the aviation sector’s distressed debt market and deploy capital at the right time in the cycle. Even with governments’ support over half of airlines will enter into liquidation. It is easier for regional carriers, charter airlines and international airport hubs to secure finance and hard for the local airports, airline catering and low cost airlines.
Many airlines had to borrow to stay afloat. Repaying these loans is made harder by worsening credit ratings and higher financing costs. These costs will need to be recouped, which might lead ticket increase by an estimated 3%. Flight schedules might increase but there are many government travel restrictions. The Africa Centre for Disease Control and Prevention (Africa CDC) recently announced that it could take until end of 2022to vaccinate at least 60% of the continent’s population.
Meanwhile Ethiopian airlines transformed many of its passenger airlines into cargo carriers. They have managed to survive by taking the current crisis as an opportunity. When Air Namibia ceased operations in February, they took the opportunity and expanded flights to Windhoek, Namibia.
By Agnes Chioneso Msongelwa