Surge in airline collapses, mergers predicted for 2021 amid continuing Covid-19 crisis

A surge in merger and acquisition activity in the aviation sector is expected in the months ahead and more airline collapses are likely.

That is among the findings contained in PricewaterhouseCoopers’ (PwC) Aviation Industry Outlook for 2021.

The analysis also predicts that airlines will need ongoing access to emergency liquidity, including government support, for the foreseeable future.

It finds that extensive government support already provided, estimated to be at least US$180 billion, has played a major role in saving a number of weak carriers from collapse.

However, in doing so “a long-term un-levelling of the playing field” has been introduced, the report warns.

According to the international data analysis firm, Cirium, more than 40 airlines went out of business in 2020.

It is widely acknowledged that the number would have been much higher without the injection of government support which has kept many airlines afloat.

The PwC report says record numbers of investors are “lining up” in anticipation of finding real value in distressed aviation-related transactions, arguably for the first time in over a decade.

The airline industry group, IATA (International Air Transport Association) calculates that losses across the airline industry amounted to US$118.5 billion in 2020 and projects a further US$38.7 billion in losses in 2021.

“In order to survive and thrive in the post-Covid world, airlines will have to fundamentally re-think their fleets, their business models and their finances,” Dick Forsberg, author of the report and Senior Aviation Finance Consultant at PwC Ireland, told RTE Ireland.

He warned that a return to business as usual is not a viable option for the sector.

“Firstly, there are too many aircraft in the system and a market of 4.5 billion passengers will not return overnight. Secondly, airlines will not be able to simply pick up where they left off and the way that they serve their markets may have become uneconomic,” he explained.

Forsberg said the “crippling” debt burden that’s building across much of the industry will require fundamental restructuring in order to bring long-term solvency and profitability.