ICRA Continues To Maintain Negative Credit Outlook On Aviation Industry

The outlook reflects ICRA's view that the financial performance of Indian airlines is likely to remain weak in the near-to-medium term amidst weak air traffic, following continued restriction on international travel and subdued demand for domestic travel, owing to the rise in infections.

"Notwithstanding the improving pace of vaccination, the measures taken to curb the rising infections continue to weigh on the recovery prospects of Indian carriers. Furthermore, the credit profile of most Indian carriers continues to be characterised by a weak liquidity position.

Post the gradual opening up of the domestic airline operations since May 25, 2020, domestic passenger traffic witnessed gradual recovery as infections declined and restrictions werelifted by various state governments. However, Q1 FY2022 witnessed a sequential decline of ~53% (over Q4 FY2021) in the domestic passenger traffic because of the resurgence of the second wave of Covid-19. Though, as infections demonstrated a downward trajectory, the domestic passenger traffic witnessed a sequential growth of 61% in July 2021 and 30-31% is expected in August 2021," ICRA has stated.

Given the onset of Covid-19 2.0, the demand recovery will be delayed for FY2022. Consequently, debt levels are likely to remain high for the industry and are estimated to be range bound at around Rs. 1200 billion (including lease liabilities) for FY2022, with the industry requiring an additional funding support of Rs. 450-470 billion over FY2022 to FY2024.