Summary
- IATA has raised concerns as Pakistan and Bangladesh continue holding up airline revenues.
- $720 million in revenue from both countries have been blocked, contravening international agreements.
- IATA has urged to release the funds to help airlines that already operate on razor-thin margins.
The International Air Transport Association (IATA) has expressed concerns that Pakistan and Bangladesh have held up airline revenues worth up to $720 million, calling on both countries to release funds into carriers’ coffers, noting that airlines already operate on thin margins.
Violating international agreements
According to IATA, the situation has become “severe” since airlines cannot collect over $720 million in revenue from Pakistan ($399 million) and Bangladesh ($323 million), with the funds being held in contravention of international agreements.
The association proposed two changes to the countries’ regulations, calling on Pakistan to simplify the process for the repatriation of funds. Currently, it includes the requirement to provide audit and tax exemption certificates, both of which can cause unnecessary delays in receiving cash from passengers. Meanwhile, while IATA pointed out that Bangladesh has more standardized processes, aviation needs a higher priority from the Central Bank to facilitate access to foreign exchange funds.
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Philip Goh, the Vice President for Asia-Pacific at IATA, said that the timely return of the funds to their home countries is critical for the payment of dollar-denominated expenses, including leases for aircraft and/or engines, spare parts, overflight fees, and fuel.
“Delaying repatriation contravenes international obligations written into bilateral agreements and increases exchange rate risks for airlines. Pakistan and Bangladesh must release the more than $720 million that they are blocking with immediate effect so that airlines can continue to efficiently provide the air connectivity on which both these economies rely.”
Related
Airlines Scale Back Pakistan Flights Amid Dollar Repatriation Challenges
A foreign reserve crisis makes serving the country increasingly difficult.
Recognizing challenges
Still, Goh stated that IATA was aware of the challenges these countries face when deciding how to use foreign currencies strategically. However, the association’s executive noted that airlines operate on razor-thin margins, which forces them to prioritize markets on the confidence they have in being able to pay their expenses with revenues that are released on time and efficiently.
“Reduced air connectivity limits the potential for economic growth, foreign investment, and exports. With such large sums of money involved in both markets, urgent solutions are needed.”
According to a report by The Economic Times in February, Pakistan’s foreign exchange reserve dwindled down to around $8.2 billion. The State Bank of Pakistan‘s (SBP) latest update to foreign investors stated that its foreign exchange reserves were around $8 billion as of April 12, 2024, saying that the situation had improved since January 2023, when the SBP had around $3.1 billion of reserves.
Photo: Minh K Tran | Shutterstock
Meanwhile, Bangladesh’s foreign exchange reserve situation is much better, with the Bangladesh Bank’s (BB) monetary policy update saying that as of December 31, 2023, the bank held $21.8 billion of foreign exchange reserves. At the end of June 2023, the bank held a $24.75 billion reserve.
“Besides allowing a significant depreciation of the Bangladesh Taka (BDT) and infusing a substantial amount of foreign exchange into the local market, BB has made concentrated efforts to augment inflows and curtail unnecessary outflows of foreign exchange, aiming to stabilize the foreign exchange market.”
Related
Roughly $2 Billion Of Airline Funds Are Being Blocked By Governments Worldwide
The International Air Transport Association has called on 27 countries to repatriate the outstanding airline revenues.
Impact to connectivity
Looking at data from the aviation analytics company Cirium, international airlines, excluding Bangladesh-based carriers, have scheduled 359 weekly flights, amounting to 84,389 seats and 271.7 million available seat kilometers (ASK) to Bangladesh in May 2024. In comparison, while last year the number of weekly flights was the same (359), carriers deployed fewer seats, 88,163, resulting in fewer ASKs, 289.6 million.
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Meanwhile, international airlines, excluding Pakistan-based companies, have scheduled 516 weekly flights, amounting to 123,331 seats and 286.01 million ASKs in May 2024. During the same month a year prior, the country’s connectivity had more flights, 527, more seats, 125,889, and more ASKs, 294.1 million.
