November 06, (THEWILL) – The International Air Transport Association (IATA) has put the current aviation industry’s blocked funds at USD1.9 billion globally, as of September 2022, adding that the risk that this number will rise is elevated.
According to IATA, the US dollar has seen a sharp 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 currency, notably the USD in the current situation, becomes more expensive to pay back and to service, in line with the size of the depreciation, adding that higher nominal interest rates add another challenge in this regard.
But IATA noted that unless the country in question earns US dollars on their potential exports in sufficient quantities, a central bank can find itself running low on foreign exchange reserves, as it strives to honour its external financial obligations.
“In the extreme, this can lead to full-blown balance-of-payments crises and defaults on external debt. Any country facing such challenges can ration access to its limited foreign exchange reserves. Capital controls can be implemented, which can, for instance, cap the amount of foreign currency citizens and businesses are allowed to obtain”, it stated.
IATA, therefore, advised that airlines and indeed any foreign business making sales in the countries concerned can find themselves unable to repatriate the funds which they are owed.
For instance, in 2016, airlines had to completely write off USD3.7 billion worth of airline funds that were blocked in Venezuela at the time.
According to IATA, the mechanism through which this occurs is that tickets are sold by local travel agents or directly by the airline, accumulating sales that it then seeks to repatriate.
It further pointed out that even the waiting period for such repatriation represents a significant risk to airlines’ earnings, as the local currency might continue to depreciate.
“The risk here is not only to the airlines’ finances, but ultimately to the countries’ connectivity should airlines decide to reduce service. One national carrier has withdrawn passenger flight services on Nigerian routes over foreign airlines’ trapped funds, estimated to have reached over USD500 million.”