Blocked funds, where governments restrict or delay the repatriation of airline revenues, have significant and far-reaching consequences for the global airline industry.

Blocked or trapped funds seem to have become a perennial issue for the industry, especially in regions such as the Middle East, Africa, and parts of South Asia.

As of September this year, there were $1.3bn of airline revenue which are, for various reasons, blocked from repatriation, according to the International Air Transport Association.

Some 93% of this is in the Africa and Middle East region, which points to the fact that it is impacting airline businesses in the region.

According to IATA, the following countries with outstanding balances are in the Mena region: Algeria ($245mn), Lebanon ($139mn), Libya ($29mn), Yemen ($17.5mn) and Sudan ($10mn).

At a recent industry event in Morocco, IATA Director General Willie Walsh noted, “As much progress as we make, a new challenge always emerges. With your support, we will continue to highlight that airlines cannot provide economically vital connectivity if they are unable to repatriate the revenues needed to pay the bills!”

Industry analysts say blocked funds are revenues earned by foreign airlines in a country that cannot be converted or transferred out due to local foreign exchange controls, currency shortages, or government restrictions.

These funds typically arise from ticket sales or cargo operations paid in the local currency, which airlines normally repatriate to their home countries to cover operating costs.

On the immediate financial impact on airlines (due to blocked funds), analysts say, “Airlines operate on tight margins and rely on regular repatriation of local earnings to cover expenses like fuel, leases, and salaries. Blocked funds disrupt this flow.

“When hundreds of millions of dollars are trapped, airlines must find alternative liquidity or borrow at higher costs to sustain operations. Prolonged inability to recover funds may lead airlines to write off those amounts, directly impacting their profitability.”

Leading GCC carriers such as Qatar Airways, Emirates and Etihad and other regional airlines often face secondary effects — such as reduced feeder traffic from affected regions and complex currency hedging requirements.

IATA has repeatedly urged governments to remove all barriers preventing airlines from the timely repatriation of their revenues from ticket sales and other activities in accordance with international agreements and treaty obligations.

Earlier this year, Walsh noted, "Ensuring the timely repatriation of revenues is vital for airlines to cover dollar-denominated expenses and maintain their operations. Delays and denials violate bilateral agreements and increase exchange rate risks. Reliable access to revenues is critical for any business—particularly airlines which operate on very thin margins. “Economies and jobs rely on international connectivity. Governments must realise that it is a challenge for airlines to maintain connectivity when revenue repatriation is denied or delayed.”

Clearly, 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.

Industry analysts also 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.

Therefore, airlines will have to account for these funds as potential losses, adversely impacting their financial performance.
Pratap John is Business Editor at Gulf Times. X handle: @PratapJohn.