Some countries devise unconventional means to shore up their depleted treasuries, notwithstanding the damage these can inflict on their profile.
One way of channelling funds into their kitty seems to be preventing foreign airlines from repatriating funds.
Governments’ blocking airline funds, often due to foreign exchange shortages or restrictive economic policies, significantly impacts the airline industry in several ways.
Countries that block funds are very likely to deter foreign investment and reduce their appeal to international businesses.
Obviously, investors and stakeholders will see the affected markets as high-risk, influencing strategic decisions.
The result will be fewer flights to these countries, which can lead to a decrease in tourist inflows and trade opportunities, hurting local economies.
Certainly, fewer flight options will inconvenience travellers and businesses relying on air connectivity. Increased fares and reduced competition will make travel more expensive for passengers.
Recently, the International Air Transport Association (IATA) reported that $1.7bn in airline funds are blocked from repatriation by governments as of the end of October this year. This is a small improvement compared to the $1.8bn reported at the end of April.
“Over the last six months, we have seen significant reductions in blocked funds in Pakistan, Bangladesh, Algeria and Ethiopia. At the same time, amounts are rising in some Central African countries and Mozambique. Bolivia has also emerged as a problem, where repatriating sales revenues is becoming increasingly difficult and unsustainable for airlines.
“This unfortunate game of ‘whack-a-mole’ is unacceptable. Governments must remove all barriers for airlines to repatriate their revenues from ticket sales and other activities in accordance with international agreements and treaty obligations,” said Willie Walsh, IATA’s Director General.
“No country wants to lose aviation connectivity, which drives economic prosperity. But if airlines cannot repatriate their revenues, they cannot be expected to provide a service. Economies will suffer if connectivity collapses. So, it is in everyone’s interest, including governments, to ensure that airlines can repatriate their funds smoothly,” Walsh noted.
Nine countries account for 83% of the airline industry’s blocked funds, amounting to $1.43bn.
Pakistan continues to top the list of blocked funds countries at $311mn. However, this is an improvement from $411mn in April this year. The main issue is the system of audit and tax exemption certificates which is causing long processing delays.
Bangladesh has seen the amount of blocked funds decrease to $196mn (from $320mn in April).
The Central Bank needs to continue to prioritise airlines’ access to foreign exchange in line with international treated obligations, IATA said.
About $1bn of airline money blocked from repatriation is in African countries. That is about 59% of the global tally. Over the last six months, there were significant reductions in blocked funds in Algeria ($193mn from $286mn in April) and Ethiopia ($43mn from $149mn in April).
At the same time, Central African countries (+$84mn), Mozambique (+$84 million) and West African countries (+$73mn) contributed to the largest increases.
Bolivia is new to the list of blocked fund countries. A further deterioration in the availability of foreign exchange, particular the US dollar, has resulted in an estimated $42 million in airline funds being blocked in the country.
Industry analysts say airlines are unable to repatriate revenue earned in these countries, leading to a liquidity crunch.
Carriers rely on consistent revenue to manage operations, pay debts, and fund investments. Blocked funds disrupt these cash flows.
Airlines may have to account for these funds as potential losses, adversely impacting their financial performance.
All along, IATA has raised concerns about this issue, urging governments to release funds and adopt policies fostering fair access to international markets.
For airlines, diversifying operations and improving liquidity management are common strategies to navigate these challenges.
Governments’ blocking airline funds, often due to foreign exchange shortages or restrictive economic policies, significantly impacts the airline industry in several ways
