The airlines still facing risk of bankruptcy as travel returns

Stirrings of a recovery in global travel are bringing airlines back from the brink, but the rebound may come too late for several carriers still facing a heightened risk of bankruptcy, a Bloomberg News analysis shows. Covid-19 paralyzed international aviation as nations locked their borders and imposed other restrictions that are only now being dismantled in some parts of the world. Asia is lagging, with China and Hong Kong almost completely walled off, and the financial positions of some airlines in the region have deteriorated since Bloomberg did the same analysis in March and November 2020. And while governments in Europe and the U.S. injected billions of dollars in aid into carriers, state help wasn’t as forthcoming elsewhere, leaving cash-strapped airlines to work out restructures in court or directly with creditors. “These airlines were already in a bad financial state” before Covid-19, said Mark Martin, founder of Dubai-based Martin Consulting LLC. Most of those still stuck in the quagmire are there because the markets they usually cater to came to a standstill due to the pandemic, and they had no other way of attracting flyers, he said. Using the Z-score method developed in the 1960s by American finance professor Edward Altman to predict bankruptcies, Bloomberg studied publicly-listed major commercial airlines to identify those most under threat. Scores of 1.8 or below indicate bankruptcy risk, while above 3 suggests sound footing. This doesn’t take into account sources of potential additional funding. The Z-score uses five variables: liquidity, solvency, profitability, leverage and recent performance. The model initially had accuracy rates of more than 95% in predicting bankruptcies, but that has come down to between 80% and 90% for forecasts made within a year of insolvency, Altman said in a 2018 interview.<br/>