The COVID-19 pandemic has not only affected airlines, thanks to the reduced passenger demand, but, as a result, it has significantly affected the aircraft manufacturers. Aircraft lessors, China Development Bank Financial Leasing Co., Avolon Holdings Ltd. and General Electric Co.’s GECAS have cancelled orders for 173 Boeing 737 MAX aircraft over the past month, worth almost $17.8bn.
While Airbus is reducing their manufacturing by a third, Boeing shall now reduce production of the 787 Dreamliners by half. Airbus usually produced more than 60 A320 aircraft every month at assembly lines in Hamburg and Toulouse, but given the current situation, it would reduce that to 40. It shall also cut A330 output to two a month and A350s to a rate of six.
The problem, according to International Air Transport Association seems far grave, as it estimates the annual traffic to decline by 48% this year because of the pandemic, even if air travel returns to normal in the second half of the year, which as well, looks highly improbable.
According to several airlines, it will take airlines almost 15-18 months to get back to normal after restrictions on international travel and tourism are relaxed. The first step that majority of the airlines have taken to save up on the cash reserves is to curtail their fleet – Lufthansa retired several aircraft, KLM and Qantas followed the course. Cathay Pacific is also supposedly working on converting their Boeing 777x order to a 787-10 order, thereby reducing the cost of procurement.
The biggest earners for Airbus and Boeing have been the single aisle jets – A320 and the 737 respectively. The major customers for these have often been the non-government entities like Interglobe Aviation (which owns IndiGo Airlines), PT Lion Mentari Airlines, EasyJet, among others. In the current crisis, private carriers would be second to receive government support and aid after the state carriers, which means that private airlines will have to bear more losses. As a result, the biggest customers for single aisle jets will not be as aggressive in adding additional jets to their fleet, as they were, prior to the pandemic, which shall further create a significant slump in cash flow for Airbus and Boeing.
Both aircraft manufacturing giants do put out an annual 20-year market forecasts, shaped by macroeconomic factors such as people’s propensity to travel as income rises, GDP growth, and urban population changes. For long-range predictions, these surveys have done remarkably well for most of the times in the past. However, a crisis as the one we are experiencing currently not only hampers the long-term plans for manufacturers, but due to the uncertainty, it also discourages the investors, on whom Airbus and Boeing heavily rely.
All in all, the struggle for Airbus and Boeing will last much longer than it would for airlines. While both entities are too big for anything to go haywire, it will be long before either of these giants see days of financial prosperity.
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