Taking on more debt a necessary evil for US airlines

Following the announcement that major US airlines have reached a deal in principle with the federal government to secure aid;

Nick Wyatt, Head of R&A and Travel & Tourism at GlobalData, a leading data and analytics company, offers his view on the situation:

“US airlines will need to take on additional debt as some of the government aid comes in the form of interest-bearing loans. While this is not the outcome they had hoped for, it is a necessary evil that may just secure their survival.

“The loans, which for the larger airlines are counted in the billions, will saddle companies with mid to long term debt, which might check their post-COVID recovery somewhat.

“However, such is their dire need for immediate cash injections that they have no option but to accept the terms the federal government is proposing. Their precarious current situation affords them little to no negotiating power.

“Airlines the world over are crying out for help from their respective governments. The US was swift to act, but conscious of taxpayer objections in what is an election year, has refused to give airlines a free lunch.

“It would be churlish for the airlines to complain, after all, free market economics place no obligation on the state to intervene. Many see this as a less-than-ideal solution, but as a necessary step to ensure they can navigate a difficult few months ahead.”

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