A New Playbook for Aviation Restructuring in a Post-Pandemic World
The COVID-19 pandemic has dealt a swift and severe blow to the global airline industry. Besides depressing air travel itself, travel restrictions imposed by governments in response to the global health crisis have impacted demand for aircraft, parts, and services. The global air transportation industry, which represents 21 million jobs worldwide and $1.3 trillion of GDP, suffered an 80%-plus reduction in global demand within just a matter of months. The International Air Transport Association predicts full-year passenger traffic is set to decline 66% compared to 2019 and that the industry will burn $77 billion in cash in the second half of 2020.
DECREASE IN SEPTEMBER 2020 WORLD RPK TRAFFIC CHANGE VS. 2019
SEPTEMBER 2020 WORLD LOAD FACTOR
In a desperate attempt to survive, airlines have been forced to lay off tens of thousands of workers in the United States alone. Capital expenditures have been deferred. As a result, stakeholders, who in the past could be counted on for support, are now facing cash-flow problems of their own.
Meanwhile, the pandemic shows no sign of abating. Even once a vaccine is discovered, it is unclear when travel will return to pre-pandemic levels or if all travel restrictions will be lifted. Given the unprecedented nature of the situation, the airline industry will require a completely different approach when it comes to restructuring.
In A New Playbook for Aviation Restructuring in a Post-Pandemic World, Nicholas Pastushan, executive director at Riveron, examines the challenges facing the airlines industry and offers strategies to weather the storm. According to Pastushan, there are several things industry operators can do to address these challenges and prepare for an uncertain future:
- Leverage the hibernation period: Companies that take appropriate actions to minimize losses during a period of “hibernation” will have a high likelihood of emerging on the other side.
- Adopt a conservative liquidity management strategy: A company that has already done an initial restructuring will be hard-pressed to raise new cash if its commercial plan turns out to be significantly wrong. It is better to be conservative initially, even if it involves a deeper restructuring to avoid failing to emerge due to inadequate liquidity.
- Demand transparency and fair treatment: Transparency and a sense of fair treatment enables plans to be properly evaluated and can build the trust that is needed among all stakeholders for a successful restructuring.