Gediminas Ziemelis: New IFRS For Airlines With Provisions For Virus Impact?

Over the last 10 years, the world has faced two viruses with a great many deaths, consumer panic, and a huge impact on airline industries and the global economy.

In 2009, 575 000 people died from the swine flu pandemic, and from 2019 until now, 330 000 people died from Covid-19. At the beginning of 2020, some airlines announced dividends to shareholders from last year’s profit but had to ask for state aid several weeks later. Looking at history over the past 50 years it is obvious that there is a frequency in pandemics with the impact on airline businesses already anticipated. It is important to note that inaccurate provision accounting could result in significant losses for both investors and air passengers and insignificant financial problems for the company.

Global uncertainty caused by Covid-19 has had a significant impact on the economic system as well as on the ability to quickly and effectively respond to the pandemic. According to the recent study published in VOX, a weighty global output contraction will be caused by Covid-19 and more than half of it will be for the reason of economic uncertainty, which is so substantial that its costs are proportionate to the costs created by the pandemic itself.

The Covid-19 outbreak led to a halt, not only for the people of the world but also for the economy heavily affecting the whole business environment that is now experiencing major challenges and the future does not seem bright. The expectation is that the global economy will face a recession that is considered the worst since the Great Depression, according to the International Monetary Fund. However, the World Trade Organisation is more pessimistic, forecasting almost 9 percent negative growth for 2020. The effects also reached the global foreign direct investment (FDI) with the capital from emerging economies flowing out unpredictably. The downward pressure of between -30 and -40 percent in 2020-2021 is predicted for FDI.