The airlines in the country are expected to incur a consolidated loss of $4.1 billion in the current financial year — similar to fiscal 2021 — because of the Covid-19 pandemic, aviation consultancy firm Capa India said on Thursday. This will take total losses over two years to around $8 billion as a result of the two Covid waves.

“The full service carriers are expected to contribute $2.1 billion of losses while low cost carriers would account for $2.0 billion. The projected losses could rise further if necessary recapitalisation comes in the form of debt, for which borrowing costs will need to be included.

“At this stage it is not known how a recapitalisation will be funded. Air India and IndiGo combined will represent around $4.5 billion of the approximately $8 billion in losses,” Capa India said in its FY2022 Airline Outlook.

Airlines are expected to need close to $5 billion of recapitalisation in FY2022 just to survive, the report said.

“Of this, around $1.1 billion is in the pipeline in the form of IPOs (initial public offering), QIPs (qualified institutional placement) and other (financial) instruments. This does not include additional funding required to achieve solvency,” the report said.

“In the light of the known recapitalisation plans of Indian carriers, the incremental requirement could be reduced to $3.5 billion. However, it is not currently possible to determine whether the $1.5 billion of planned recapitalisation will materialise,” it added.

Rating agency Icra has said the Indian aviation industry is expected to report a net loss of Rs 21,000 crore in 2020-21 against a net loss of Rs 12,700 crore in 2019-20 because of lower revenues and high fixed costs.

The industry’s debt level will increase to Rs 50,000 crore (excluding lease liabilities) over 2021-22 and the industry will require an additional funding of Rs 35,000 crore to 37,000 crore over 2021-2023, it added.

Capa estimates that domestic airline traffic is expected to stand at 80-95 million during FY2022, up from 52.5 million registered during FY2021, but well below the 140 million registered during FY2020.

“This projection does not take into account a third wave.... After a massive slump in April and May, we expect to see a moderate recovery in June as activity returns, with an acceleration in traffic from Q2 (July-September 2021 period),” it said.

“As was the case in the second half of FY2021, we expect to see rising confidence and continued traffic recovery in the second half of this financial year," it added.

Capa India expects international airline traffic to remain at 16-21 million during FY2022 due to border restrictions. "However, international traffic will be particularly sensitive to discrete decisions taken by governments on such matters, which cannot be predicted," the agency said in the report.

“As with domestic traffic, the second half of the year is expected to be far more positive,” it added.

Domestic air passenger traffic slumped to about 20 lakh passengers in May, down 67 per cent sequentially, due to the vicious second surge in covid-19 infections in the country, Icra said. The May passenger traffic was also lower than the numbers registered during June-July 2020, when a two-month nationwide stringent lockdown was lifted by the government.