Pak Int'l, Thai Airways among airlines on brink of bankruptcy amid COVID

The airline industry is among the worst-hit due to the COVID-19 pandemic. And, if the governments don’t support the airlines, they may go bankrupt, according to an analysis.

Bloomberg News, using the Z-score method developed by Edward Altman in the 1960s to predict bankruptcies, said it sifted through available data on listed commercial airlines to identify the ones most prone to financial strife.

Pakistan International Airlines (Pakistan), Precision Air (Tanzania), Azul (Brazil), Medview Airlines (Nigeria), AirAsia Indonesia (Indonesia), Thai Airways (Thailand), GoL Linhas (Brazil) and Grupo Aeormexico (Mexico) featured in the report’s “trying to stay airborne” list. Last month, AirAsia X said it will restructure to avoid bankruptcy.

The Z-score method uses five variables measuring liquidity, solvency, profitability, leverage and recent financial performance. The model has an accuracy rate of between 80% and 90% the year prior to insolvency, Altman said in a 2018 interview. A score below 1.8 indicates danger of bankruptcy within two years while a number closer to 3 suggests a company is on solid ground, the report added.

Related news: Airlines want testing to replace quarantine

A spokesman for Pakistan International Airlines said while data may show the airline’s liabilities exceed assets by around four times, “in reality it’s different because those liabilities are extended on sovereign guarantees and servicing is done through the government budget. In that sense, the situation isn’t as it shows. We’re comparatively doing okay.”

“Many governments have done a good job in financially supporting aviation jobs,” International Air Transport Association Director General Alexandre de Juniac had said in October, according to Bloomberg. “Where this has not happened – in Latin America for example – we see bankruptcies. Airlines continue to burn through cash and that is expected to persist into next year. Without a second tranche of financial aid, many airlines will not make it through the winter.”

Also, airlines may be forced to defer or cancel their scheduled deliveries of planes from Boeing and Airbus due to the ongoing crisis.

“The worst isn’t behind any airline… Airlines need to be supported by their governments to survive,” Qatar Airways’ chief executive officer Akbar Al Baker said. Qatar Airways has received $2 billion in state aid.