Latin American airlines are down, but not out
In the decade ahead of the 2017 Centre for Aviation (CAPA) summit in Colombia, Latin American airlines had tripled their flight seats on offer and the region was comfortably the world’s fastest growing for online reservations. At the summit, experts expressed optimism for the region’s aviation sector – but three years and a pandemic later, global airline revenues are forecast to lose a whopping US$315 billion.
Latin America’s largest carrier, LATAM, announced in March it would cancel 90% of its international flights. The airline’s CEO Jerome Cadier does not expect to see a return to pre-crisis demand until two to three years from now.
Around the same time, Brazil’s largest airline, GOL, suspended international flights until the end of June, while dramatically reducing domestic journeys too. The company also announced it had agreed to terminate over 30 forward orders of aircraft from Boeing.
As a response, the Brazilian government scrambled to take measures to relieve the country’s aviation industry from the covid-19 impact, permitting airlines and airports to defer certain fee payments. Ana Cândida, partner at BMA - Barbosa, Müssnich, Aragão, says current measures are not enough and suggests further action. “Liquidity loans with lower or subsidised interest rates and tax reliefs, would be a good starting point,” she says.
Cândida also believes that assuring airlines they can keep their slots regardless of flight frequency breaches is a crucial lifeline. “Assuring airport operators there will be no penalty in the event they do not comply with their capital expenditure obligations should be discussed,” says Cândida.
The request for more government action is echoed by Demarest Advogados partner Luciana Penteado. “Other measures are definitely required to save the sector – companies need to maintain working capital to operate during such a troubled and uncertain period,” she comments.
Concerns have also been raised from outside the region. The International Air Transport Association (IATA) is warning governments across Latin America and the Caribbean to seriously consider urgent relief measures for airlines, saying the sector’s failure “risks connectivity, prolongs the pain for employees across the travel value chain and hampers socio-economic recovery”.
Elsewhere, other Latin American governments have shown efforts to resuscitate the sector. Ecuador’s ministry of finance enabled airlines to defer income and value-added tax payments due in April, May and June. Colombian president Ivan Duque is understood to have had several meetings with Avianca executives in the last month to hash out a relief package.
Other governments have recently taken measures the aviation sector does not want to hear. Argentina’s national civil aviation administration issued a decree on 27 April banning domestic and international flight ticket sales until 1 September. IATA replied saying the decision breaches bilateral agreements and puts some 300,000 Argentine jobs at risk.
In Panama, where national flag carrier Copa Airlines was the first airline in Latin America to suspend all of its flights, Arias, Fábrega & Fábrega partner Sofía Cohen expects new passenger repatriation guidelines to be born from the crisis. She says current regulations lack clear guidance when advising airlines what do with their stranded customers.
Pedro Heilbron, chief executive of Copa, expects to return to 50% operating capacity at best by the end of the year. In a recent televised address, he hinted that the company may fly and store its planes in aircraft hangars located in US desert states to avoid the humid conditions in Panama affecting their mechanics.
Mexican president Andrés Manuel López Obrador’s approval rate has fallen below 50% for the first time, suffering widespread criticism for his slow response to the coronavirus crisis. While the government has seemingly ruled out taxpayer bailouts of any businesses, Javier Arreola of Nader, Hayaux & Goebel thinks that certain measures could be taken to help saving airlines.
"Some taxes and duties paid by airlines could be temporarily reduced or waived, while lines of credit could be provided to afford liquidity to the airlines and help them restructure some of their financial commitments. While the current administration’s measures are still unknown, the government has promised measures next week," Arreola comments.
Going forward, many agree that the sector will need years to fully get back on its feet after this pandemic. In some jurisdictions, already under considerable economic strain, this crisis could pave the way for more extreme changes. “A game-changing step needed for the Venezuelan aviation sector is adopting an open skies policy,” says Juan Enrique Aigster of Leĝa Abogados in Caracas. “We will need to begin the process of privatising airports, and reviewing bilateral air transport agreements,” he adds.