Getting the Irish aviation industry airborne again

At the depth of Covid crisis, in April 2020, 66 per cent of the world’s commercial air transport fleet was grounded and a million jobs disappeared.

“Many governments recognised aviation’s critical contributions and provided financial lifelines and other forms of support,” says Willie Walsh, the International Air Transport Association’s director general.

“But it was the rapid actions by airlines and the commitment of our people that saw the airline industry through the most difficult year in its history.”

The Government support he refers to came in a variety of forms, including government-backed commercial loans and government guarantees, recapitalisation through State equity, flight subsidies, nationalisation and deferrals or waivers of taxes and charges, as well as employment supports.

In all, IATA estimates that government aid made available to airlines as a result of Covid-19 to date exceeds $173 billion.

That has helped many parts of the industry chart a course through the turbulence. “Passenger numbers are still down, but to between 46 per cent and 49 per cent of 2019 figures, so it is improving,” says Marina Efthymiou, assistant professor in aviation management at DCU.

Airlines are in a better position than airports. “At least they have mobile assets and can move them, whether to Spain or Greece, and other places which have opened up first,” she points out.

How individual airlines recover as we emerge from the crisis depends very much on their financial health going into it.

‘Political decisions’

Aer Lingus has the strength of being part of the IAG group, while Ryanair was in a very strong financial position from the beginning of the pandemic. “However ongoing government support is essential for them to survive a tricky year [ahead],” Efthymiou says.

Politics will play a role in ongoing government supports too. “Do you finance an airline that is going to collapse, where you are only postponing the inevitable? Or do you support the one with the best opportunity to recover? These are political decisions and include all sorts of issues, such as employment, job losses and regional connectivity. It’s a complex decision,” she adds.

The EU amended its state aid rules in response to the crisis. As vaccination rollouts bear fruit and we exit the current phase, its relaxation of state aid rules will likely be readdressed.

Ireland’s aircraft leasing sector has a major advantage, however, in so far as it is in the business of renting mobile assets. “Leasing will remain strong. Airlines will rent when they can’t afford to buy, or when they want to expand fast. So leasing will remain a significant part of the market, and Ireland will remain the global HQ of leasing,” Efthymiou predicts.

Globally it helps that the sector, which is highly cyclical, came into the current crisis after 10 years of uninterrupted growth.

Moreover, adds, Joe O’Mara, head of aviation finance at KPMG, while “Covid has been terrible, and very impactful, when you look at where the sector is going, there are some positives. For a start, there is pent-up demand, and clear evidence that when restrictions are lifted, and people are allowed to fly, they will”.

Domestic travel

That has been made clear from the relative strength of domestic travel throughout the crisis. “In both China and the US, domestic travel isn’t far off what it was in 2019 so that shows people are not afraid to fly, once they are not restricted from doing so,” he says.

Identifying where global recovery will come from is more challenging, he cautions, particularly as the progress of vaccination rollouts vary significantly. Across Asia they have not been as successful as in Ireland or the EU. “That will be a significant negative drag,” he points out.

Government supports to prop up airlines have all benefited the leasing community. “We’ve seen less airlines go bust as a result of them, but there are some challenges ahead as government support tapers off. Possibly we will see more failures,” says O’Mara.

“However the reason these airlines have been supported was because they are of significant, strategic importance to governments, and that won’t change.”

There is no room for complacency, cautions Ruth Lillis, partner in Arthur Cox’s Aviation Group.

She believes the industry will require continued governmental intervention in the immediate future to sustain recovery and avoid insolvencies such as has recently been seen with the collapse of Stobart Air.

Package of supports

“It is essential that the Government continues to provide sectoral support which is responsive and adapts to the pandemic as it evolves with regard to variants of concern and vaccine boosters,” says Lillis.

“So far, the Government’s €80 million package of supports has been a welcome support to the sector, especially the €23 million funding provided for Irish airports. Continued governmental supports must be holistic, taking into account all stakeholders in the sector including those involved in aircraft maintenance, operation, leasing and tourism services to ensure that recovery occurs in tandem.”

She believes solutions such as the EU digital Covid-19 certificate has been a great success for the aviation industry and highlights “the necessity of innovative and pragmatic solutions that can enable airline activity to continue, rather than suspending air travel as a default” when handling new developments in the pandemic.

It appears a combination of government supports plus the smart action of airlines will be required to see the industry through the recovery phase too.