The aviation industry is swiftly continuing its recovery after the severe blow dealt by the COVID-19 pandemic. According to long-term analyses by credit rating agencies, the sector may regain momentum to return to pre-pandemic levels.
During the pandemic, the aviation industry struggled with financial challenges but is gradually regaining strength by improving its credit ratings. Data from credit rating agencies indicate that the industry has made significant progress in its recovery journey. In April 2020, at the height of the pandemic, many countries closed their borders and enforced strict lockdowns, leaving much of the global commercial aviation fleet grounded.
During this period, some airlines sought government aid to avoid bankruptcy, while more than a million people working in the aviation sector lost their jobs. In 2020, air passenger traffic, measured by Revenue Passenger Kilometers (RPK), saw a massive decline, marking the sharpest drop since the 1950s.
Huge Losses: Revenues Plummeted, Losses Reached Historic Levels
Passenger revenues in the industry dropped by a staggering 69% to 159 billion euros in 2020, while net losses reached 106 billion euros. This historic collapse deepened uncertainty about the industry’s future.
More Airlines Gaining Investment-Grade Ratings
According to the International Air Transport Association (IATA), based on analyses from credit rating agencies like S&P, Moody’s, and Fitch, the proportion of airlines with investment-grade ratings rose from 25% in 2021 to 35% in June 2024. However, this still falls short of the 41% level seen in 2019. Additionally, the number of airlines with the lowest credit ratings has decreased compared to 2021.
Hope for Recovery Despite Financial Struggles
During the pandemic, airlines faced declining credit ratings due to increased debt burdens, leading to higher borrowing costs. Although rising interest rates have exacerbated financial pressures, there has been a noticeable improvement in credit ratings since 2022.
Preliminary financial data show a slight decline in nominal debt compared to 2019 levels, with an adjusted net debt/EBITDA ratio of 3.8, better than the 2017-2019 average of 4. However, high interest rates continue to pose a significant challenge to the industry, putting substantial pressure on debt service costs.
