Policies airlines need to maintain 4-6 months of cash reserves: CAPA CEO

According to global consulting firm and airline CAPA, India’s Mumbai airline industry is facing a recession unless policies are put in place to ensure that it has at least four to six months of cash on hand to continue operations. will continue. CAPA said it estimated the domestic aviation industry could incur losses of more than US$1.4 billion to US$1.7 billion in the current financial year.

Two listed airlines, IndiGo and SpiceJet, have already reported losses of Rs.1064.3 crore and Rs.789 crore respectively in the April-June quarter of the current financial year.

Kapil Kaul, CAPA’s South Asia CEO, said at an industry event in Mumbai, “Financial health is a fundamental criterion for doing business (globally)… It’s the only country where technologically bankrupt companies can expand and continue to operate.” soon.

He said, as per global practice, airlines must ensure at least four to six months of cash reserves when earnings are not coming in, while airline permits are also renewed annually. but India requires AOP only updated after 5 and a half years.

“We don’t do financial valuations, we only do them when airlines are in the near final stages of operations. So we have four to six months of cash, depending on the situation, through our policy-making structure. The scale of the business must be fundamental from an operational point of view.Without it (the framework) we would continue to have a sick industry.

He emphasized that if such best practices are not adopted at this stage when some airlines are injecting capital through various financing instruments, everything in the circle will get out of hand.

He said even before the pandemic hit, the airline industry was unviable and no other airline had cash on hand for flights longer than 15 days.

Covid has had an unprecedented impact on the sector that no one was prepared for, resulting in losses of US$7 billion to US$8 billion, he added.

“We expect to lose $1.4 billion to $1.7 billion or more this fiscal year,” Kaul said.

For an undercapitalized industry that is very difficult to raise money and mostly has negative net worth, these figures call for drastic measures and different strategies, he said.

“The more we celebrate non-profitable growth, the further away we will be from the kind of reform the sector needs. Mr Kaul said.

Kaul argued that the impact of Covid will be long-term and structural, and that such losses from a very inadequate balance sheet cannot be washed away by a pre-Covid recovery.

In many ways it was easier to navigate pre Covid. Because all participants have secured strategic cooperation. In fact, his entire chain of values, including staff, lenders, vendors and lenders, has been very supportive, he said.

“Now that you’re out of Covid and starting to look to next year, you’re entering a post-Covid environment that, in my assessment, will be more hostile with no room for cooperation,” he said.

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