Nov. 06 (THEWILL) – The International Air Transport Association (IATA) has estimated the aviation industry’s current stranded funds at $1.9 billion worldwide, as of September 2022, adding that the risk of this number increasing is high.
According to IATA, the US dollar has seen strong appreciation over the past two years, against most of its trading partners, in a move that was accelerated by Russia’s invasion of Ukraine in February 2022.
On the contrary, the euro, for example, has depreciated by nearly 14% against the US dollar this year.
IATA further explained that a depreciating currency adds to inflation by making imports more expensive.
The international aviation body noted that any debt held in foreign currencies, especially USD in the current situation, becomes more expensive to repay and maintain, depending on the extent of the depreciation, adding that rates Higher nominal interest rates add another challenge in this regard.
But IATA noted that unless the country in question earns US dollars on its potential exports in sufficient quantities, a central bank may find itself short of foreign exchange reserves, as it strives to meet its external financial obligations.
“At the extreme, this can lead to widespread balance of payments crises and defaults on external debt. Any country facing such challenges may ration access to its limited foreign exchange reserves. Capital controls can be put in place, which can, for example, limit the amount of foreign currency that citizens and businesses are allowed to obtain,” he said.
IATA has therefore advised that airlines and indeed any foreign company selling to the affected countries may find it impossible to repatriate the funds owed to them.
For example, in 2016 airlines had to completely write off $3.7 billion in airline funds that were then tied up in Venezuela.
According to IATA, the mechanism by which this happens is that tickets are sold by local travel agents or directly by the airline, accumulating sales which it then seeks to repatriate.
He further pointed out that even the waiting period for such a repatriation poses a significant risk to airline revenues, as the local currency could continue to depreciate.
“The risk here is not just for airline finances, but ultimately for the connectivity of countries if airlines decide to cut service. A national carrier has withdrawn passenger flight services on Nigerian routes due to entrapped funds from foreign airlines estimated at over $500 million.