Headwinds Remain For Airlines As Debt Mountain Builds

• Published date: 20 July 2022
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Debt Capital Markets, Financial Services, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Reed Smith (Worldwide)
• Author: Mr Colin Cochrane

During the COVID-19 imposed disruption to air travel, many airlines responded by tapping shareholders for cash but many also raised money in the debt markets to cover losses. US airlines in particular took on significant levels of debt during the past two years.

While for smaller budget airlines, passenger numbers have now matched or exceeded levels from 2019, for many of the larger airlines, the recovery of passenger numbers has been slow. With airlines continuing to operate on notoriously small operating margins of around 5%, an airline's fortunes are vulnerable to small changes and for many, being able to service this ballooning debt may be difficult.

While the global oil price has fallen in recent weeks, airlines continue to face significant disruption from staff shortages and strikes. The inevitable increase in claims for compensation arising from delays and cancellations and the inability to service customers' demands will inevitably hit margins. With fears of a global recession looming and with changes to general working practices, the prospect of a return in volume of highly lucrative business travel is also likely to remain...