KARACHI: Pakistan International Airlines is facing a major risk of bankruptcy within the next two years as coronavirus pandemic batters global and domestic airlines across the world.
The prediction was made by Bloomberg News using the Z-score method developed by Edward Altman in the 1960s to identify commercial airlines at risk of going bust. The calculations don’t take into account government bailouts or other funding sources that could help keep operators alive.
The Z-score involves five variables measuring liquidity, solvency, profitability, leverage and recent performance. The model initially had accuracy rates of over 95% in predicting bankruptcies, but has come down to between 80% and 90% based on a year before insolvency, Altman said in a 2018 interview.
A spokesman for Pakistan International Airlines Corp. told Bloomberg losses and debt have become too much for the company to handle alone and that options suggested to the government include a debt-to-equity swap and long-term bond issue.
Other potential airlines that are heading towards bankruptcy are AirAsia Indonesia, Nok Air, PNG Air, Kenya Airways, Spice Jet, Virgin Australia, Asiana, AirAsiaX, Avianca.
While the list is concentrated in Asia, mostly due to high debt levels, European carriers aren’t immune, as the collapse of U.K. regional airline Flybe Group Plc proved. According to Altman, scores of 1.8 or below indicate a risk of bankruptcy and scores over 3 suggest sound footing. Indebted low-cost carrier Norwegian Air Shuttle ASA and Air France-KLM both landed below the threshold, as did American Airlines Group Inc. and SkyWest Inc.