How to support the economic recovery of aviation after COVID-19?

Abstract

The still ongoing COVID-19 pandemic lead to the most significant decrease in global air transport passenger traffic in aviation history. This decrease has been caused by a combination of demand and supply shocks. Main reasons for these shocks were the global travel restrictions, border closures, the rules and regulations for physical distancing as well as income losses of both private companies and private households even though financial support has been provided by many governments. As a consequence, airlines worldwide had to cut down the number of operated routes and flights significantly. Since February 2020, both the number of global passengers and passenger flight kilometers decreased by 80 per cent and more). These developments have caused large financial losses both for airlines and airports worldwide, critically threatening the existence of a large number of these companies. This paper investigates whether and how the economic recovery of the aviation sector should be supported by governments. Our main results indicate that government loans or government secured loans are enabling a well-balanced trade-off between governmental influence, public debt and distortion of competition if the lending criteria are transparent and nondiscriminatory. However, in the course of time, over-indebtedness will become a critical issue for most companies. At this point, non-refundable state grants offer a relatively simple but costly solution since these subsidies will directly increase public debt.