With the outbreak of COVID-19, around 119,044 people have died till April 15 (as per WHO report). All the nations have united to stand up against this global disaster. Governments of all countries have made some amendments in their travel policies to prevent widespread of this deadly microorganism. Majority of countries have announced a complete lockdown phase and presently, no sign of improvement can be foreseen in the situation.
All the sectors of the economy have been badly stroked from this pandemic including the aviation industry. Thousands of aircraft have been grounded and presently Airlines are not performing any operation. But still, they have to meet their fixed expenses to maintain their existence in the economy. People who made flight tickets are asking for a refund. This has further added a liability which needs to be paid immediately to the people.
The series of these situations have affected the solvency ratio of Airlines. So to somehow float and survive from this tough phase, Airlines are taking a few steps to minimize their liabilities to some extent.
Major and recent steps as an impact of COVID-19
Asking rental holidays from lessors
As lease rentals can make up to 60 per cent of the airline’s fixed expenditure, therefore airlines are asking for some relief from their lessors in the form of rental holiday. The rental holiday is a legal term which defines an anticipatory notice that is given to the lessor stating that the rent would not be paid. This provision is only applicable when both the parties- lessor and lessee (Airlines) agree to this condition of non-payment of rent.
The response of lessors for this request is unfavourable for the airlines. The lessors have not agreed to this demand. Instead, they are offering a rental deferment to the Airlines. This implies that the lease term duration can be extended for a few months so that the Airlines can pay back the rent later. But the rent would not be waived off and has to be paid by the Airlines to continue the lease agreement.
Requesting a refund from the insurance organizations
To overcome this financial depression, Airlines have also requested insurer to refund a part of their premium of the aircraft’s insurance plan. But this will also depend on many legal terms & conditions and entering into negotiations may take time.
Seeking government assistance
As the existence of Airlines is in jeopardy, they are seeking assistance from the government to minimize their losses. Majority of them have presented an urgent plea for direct help and some financial grants in the form of loans. They are also asking for the forbearance of taxes and other expenses like landing fees which is a burden for them.
Moreover, governments of some countries have responded in affirmation and others are considering the extent of assistance which can be provided to Airlines until this industry stabilizes.
Getting Airlines, insurance organizations, governments, and lessors on the negotiation table can lead to a situation where the losses can be minimized for all the parties. For the airlines, this can help to manage the cash flow when they are not trading in green and their operations are frozen. If this situation goes on, then the Airlines can go bankrupt leading mass level unemployment and at last hitting the economy of the country.