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Latin American Aviation at Risk

By Alicia Arizpe | Wed, 06/17/2020 - 12:54

While the COVID-19 outbreak has hurt airlines across all regions, those in Latin America seem to be under a much heavier burden, warns the International Air Transport Association (IATA), as it reiterates its call on local authorities to support the sector.

The almost complete paralysis the aviation industry is under seems to have had a greater impact on airlines in Latin America. While all continents have been hurt by the decrease in demand for air travel, strong border closures in many of the region’s hubs worsened an already large problem. The Latin American and Caribbean Air Transport Association (ALTA) indicated that airlines in the region had seen an overwhelming 97.1 percent drop in traffic during April 2020, in comparison to the previous year, with the sharpest contractions occurring in international flights within Latin America, which fell by 99.9 percent, and abroad, by 98.7 percent. These circumstances have already led the two largest airlines in the region, Avianca and LATAM Airlines, to seek bankruptcy protection and, without support, other airlines could follow suit. “Exceptional circumstances have led to a collapse in global demand that has not only brought aviation to a virtual standstill but has also changed the industry for the foreseeable future,” said Roberto Alvo, CEO of LATAM Airlines, explaining the unexpected Chapter 11 filing of the largest carrier in the region.

Another problem wracking the region is the lack of governmental support for the sector, reiterated IATA earlier this week. The association explained that the Latin American and Caribbean governments have showed the least support to the aviation industry. Governments in the region have pledged US$300 million to the sector, which represents only 0.2 percent of the total US$123 billion that governments across the globe have proposed to the industry. Before the outbreak, the sector contributed US$167 billion to the GDP of the region. IATA forecasts that this number will drop to US$77 billion, placing 3.5 million jobs at risk. The association released an urgent call to local governments to support the sector. "We recognize the efforts made by authorities in fighting this pandemic and we understand what countries are facing, but air transport is essential for our region and cannot be allowed to disappear," said Peter Cerdá, IATA Regional Vice President for the Americas.

To date, no Mexican airline has filed for bankruptcy but some have seen their debt climb to worrisome levels. Interjet, which had been dragging financial troubles since 2018, has been ramping up its debt to lessors and Mexican authorities for the use of air space, previous taxes and jet fuel. While the airline has seen 58 of its aircraft repossessed, it has strongly declined that it is seeking bankruptcy protection. However, all Mexican airlines are seeing a sharp drop in demand that is expected to cost the sector US$6.4 billion during 2020. Just in May, Aeroméxico reported a 94.4 percent year-on-year contraction in revenue passenger kilometers (RPK), while low cost airline Volaris saw an 88.1 percent decrease.

To address the crisis, the sector urges countries to avoid forced quarantines and to implement ICAO’s recommendations for a safe and coordinated return to operations. "This is our last chance to survive this crisis. Time is against us and every day that goes by places more agony on an industry that is seeking clarity on timelines to restart operations. No sector has the liquidity to stay afloat during a four or five-month standstill," said Cerdá.

Alicia Arizpe Alicia Arizpe Senior Writer