The impact of the coronavirus on the aviation industry

Fight for survival

The coronavirus pandemic has had a devastating effect on the aviation industry as a whole.

The spread of virus combined with the government imposed lockdowns have resulted in the demand for air travel to diminish to unprecedented levels.

This is the worst crisis the aviation industry has ever had to face in its entire history.

The International Air Transport Association (IATA) sees the global revenue losses for the passenger business in 2020 to be $113 billion (£98.42 billion) and has warned that 25 million jobs are at risk in the aviation industry if governments do not step in with lifelines.

Commercial airlines

Commercial airlines all over the world have had to reduce their capacity, ground their aircraft and take drastic measures to reduce their costs as they fight for survival.

Cancelled flights and the loss of revenue from future bookings have made the financial situation for many airlines untenable.

Many governments have stepped in and offered state aid and government Job Retention Schemes to assist many businesses through this unprecedented crisis.

Lufthansa has applied for state aid with the governments of Germany, Austria, and Switzerland for EUR 9 billion (£7.84 billion) and has already implemented the Job Retention Scheme for its employees. Although the airline has liquidity of EUR 4.4. billion (£3.83 billion), the airline will still risk going under if state aid is not provided soon.

Air France-KLM on the other hand have recently secured around EUR 9 billion (£7.84 billion) in government aid. The French government will provide Air France with EUR 7 billion (£6.1 billion) in loan guarantees and direct aid, whereas the Dutch government will provide KLM with a EUR 2 to 4 billion (£1.74 to £3.48 billion) package that is still under negotiation with the financial institutions.

British Airways, which is part of the International Airlines Group (IAG), has implemented the U.K. governments Job Retention Scheme for 22,626 employees and has recently announced that it will be implementing its restructuring and redundancy programme to reduce its workforce by cutting up to 12,000 jobs. The airline believes that it will take several years for the recovery of passenger demand to return to 2019 levels. British Airways has liquidity of around EUR 7.2 billion (£6.27 billion) and EUR 2.1 billion (£1.83 billion) in financial facilities, but its operating loses for the first quarter of the year were already EUR 535 million (£466 million).

EasyJet has grounded its entire fleet and implemented governments Job Retention Schemes across Europe for most of its workforce. The airline also recently secured a EUR 687 million (£600 million) loan from the UK Treasury and the Bank of England’s emergency coronavirus fund.

Virgin Atlantic recently pursued a EUR 573 million (£500 million) government package from the U.K. government but that was rejected and the airline has now set a deadline to find new investors by the end of May 2020.

The top 10 commercial airlines in the US have also been granted $25 billion (£20 billion) in payroll support from the US Department of Treasury through a combination of low cost loans and grants.

Some airlines which were already struggling prior to the coronavirus pandemic, like FlyBe the U.K.'s biggest domestic carrier, went into administration in March.

Virgin Australia, which was Australia's second largest carrier, had debts of AUD $5 billion (£2.61 billion) and went into voluntary administration recently. It was unable to secure financial aid in the form of a government loan of AUD $1.4 billion (£731 million) and is now seeking to restructure its debts, pay creditors and find new investors.

The "survival of the fittest" is most definitely playing out in the aviation industry, but one of its biggest problems is that the industry does not know exactly when this will all end.

The coronavirus pandemic will undoubtedly result in many airlines having to reduce in size, take on or restructure debt, reduce their workforce and unfortunately in some cases where all this is not enough, they will fail.

Aircraft Manufacturers

Both Airbus and Boeing are by far the largest suppliers of commercial passenger aircraft in the world. The impact of the coronavirus pandemic is resulting in disruption to aircraft production as well as orders for new aircraft being cancelled or deferred by the airlines.

The CEO of Airbus, Guillaume Faury has stated that the company was “bleeding cash at an unprecedented speed” and that there may be a need for significant job cuts as the survival of Airbus would be at stake without immediate action.

Airbus has already reduced aircraft production and began the implementation of the government assisted Job Retention Schemes in France for 3,000 employees and more recently another 3,200 employees at their Broughton site in North Wales, UK.

In total Airbus employ around 13,500 workers in the U.K. with most of them making wings at the sites in Broughton, North Wales and Filton, Bristol.

Boeing on the other hand has already closed several of its U.S. sites, offered voluntary redundancies to its employees and is dealing with the impact of customers cancelling and deferring their orders for new aircraft.

Boeing also recently pulled out of a $4.2 billion (£3.4 billion) deal to acquire Embraer, of Brazil and it may also be forced to delay the launch of its latest wide-bodied aircraft, the 777X.

It is unlikely that Airbus or Boeing will return to their previous production levels when the world emerges from the coronavirus pandemic.

Aerospace Suppliers

Aircraft manufacturers rely on thousands of suppliers to fulfil their production requirements. Any impact on these manufacturing companies has a direct impact on their suppliers too.

These suppliers are highly regulated and require certification to provide parts and systems to the aerospace industry. These range from aircraft engines, landing gear, brakes, seats, cockpit flight and control systems, as well as fuel and safety systems amongst many others.

Rolls-Royce which makes engines for commercial airlines, relies on the civil aerospace industry for almost half its EUR 17.22 billion (£15 billion) annual revenue. The company has seen a significant impact on its revenues due to airlines grounding their fleets and reducing overall flying hours. There has been a drop in engine delivery, maintenance, repair and overhaul volumes. Rolls-Royce has arranged credit facilities in order to increase their liquidity to around EUR 8 billion (£7 billion) and reduced salaries across its worldwide workforce by 10 percent this year to help it survive the crisis.

There are thousands of suppliers and each and everyone of them will be impacted as a direct result of the reduction in demand for new aircraft and reduced flight operations by airlines.

What does the future hold?

The aviation industry has entered unknown territory and is dealing with a crisis on a scale that it has not had to contend with before.

The demand for air travel, the number of jobs, their operating procedures, and passenger requirements may all be significantly different moving forward.

A lot will depend on how the various governments deal with the crisis, what restrictions will be lifted and what new restrictions will be imposed.

It will take several years for the aviation industry to fully recover from the impact of the coronavirus.

The aviation industry has had to contend with many crisis in the past and has always successfully overcome them.

No doubt, the aviation industry will overcome this crisis too, but it will most definitely emerge from the coronavirus pandemic significantly leaner, more robust, and will face a future that will be very different to one it was facing before the crisis began.