The impact of the Covid-19 on the aviation industry
The Covid-19 health crisis is putting an unparalleled brake on the air passenger transport sector. Globally, we are facing a collapse of air operations worldwide and at all levels. According to data from the International Air Transport Association (IATA), traffic fell by 80% in the first days of April, which will have important consequences for the aviation industry
Companies in the sector have already gone through many crises, from terrorist attacks to situations caused by rising oil prices, epidemics or wars.
A precedent that may come close to the reality we are now experiencing was the attacks on the Twin Towers in New York on 11 September 2001, which triggered a global problem. It took the aviation industry two years to recover from the hard blow and, as a result of these events, security measures were taken on board, materials were changed and pilots and crew members were trained to react to similar situations. Similarly, airports strengthened technology-supported controls, increased X-ray screening, weapons and explosives detectors and body scanners.
However, in this health crisis, air transport services are also playing a key role; primarily through the shipment of goods, including medical, health and protective supplies, and the repatriation of people who have been caught in this situation outside their home country.
In this context, the Airports Council International (ACI) has made its forecasts and estimates that the Covid-19 will end up with almost 40% of the passenger traffic in 2020 which, if so, would amount to about 3,600 million worldwide.
Obviously, these figures directly affect the aviation industry. The sector, at a global level, has seen commercial flights reduced to historical minimums, has been forced to slow down its production and is currently immersed in a re-planning of the activity due to the decrease in deliveries to OEM's; something that will surely happen throughout 2020.
Undoubtedly, the priority during these weeks of the fight against the pandemic is the protection of users and workers. As in other sectors, health and safety measures have been taken to an extreme, and the aeronautical sector has been forced to redefine its work processes to adapt to compliance with these measures in its production centres. And this appears to be structural.
The first of the effects of the Covid-19 crisis on aeronautics was the cancellation of flights and closure of borders. The consequence: complete fleets of aircraft on the ground and a drastic reduction in routes and occupancy factors, with the consequent economic losses for airlines, airports and other related activities.
In terms of production capacity and supply chain, we are already starting to see a considerable reduction in operations, both for OEM's and obviously for suppliers, which will result in great financial pressure if they are weak suppliers in this respect. Too many, in any case.
For its part, the International Air Transport Association (IATA) is already forecasting losses for the air passenger transport sector of some 286.5 billion euros this year.
What will be the future of the aerospace industry?
In an article, Roland Berger's website analyses the magnitude of the crisis in this sector and focuses on its ability to recover around the following factors:
- The duration of the restrictions on commercial flights. At the moment the airlines have almost all their fleet stopped and with no forecasts about when they will be able to resume activity.
- The start-up. When the restrictions are lifted and the borders opened, each country will put in place certain measures to continue the fight against the spread of the virus and this will most likely be reflected in new restrictions resulting in a reactivation of the service at very low levels.
- A new reality. The extent of the virus is unknown for the moment and whether there will be another outbreak in the next stages, such as in the autumn. It is therefore foreseeable that restrictions and health and safety measures will be maintained over time and we will have to get used to living in this new reality marked by social distance and the use of protective gloves and masks.
The mirror of China
If we look at the example of China, which is already in a recovery phase, since the end of March the country's airlines can only operate one flight a week to each foreign country they travel to, while foreign companies can also maintain only one air route with China per week. These are the indications of the country's Civil Aviation Administration (CAAC), which advocates a passenger load of less than 75% and, depending on the spread of the virus and the appearance of new outbreaks, does not rule out further restrictions.
Following the "de-confinement" of the city of Wuhan on 8 April, some activity in air transport has resumed. However, under a series of measures that begin with a reduction in aircraft occupancy, set at around 50 percent as a measure to prevent possible contagion, although flights to the capital remain banned. Tickets can only be purchased by those who can prove through a QR code on their mobile phone that they are in good health, although they must also undergo identity and temperature checks.
To identify healthy people, the Chinese authorities have established three categories: green, yellow and red. A green code is supposed to guarantee that the person is not infected and has not been in close contact with confirmed or suspected cases. A code yellow indicates that the user should be isolated at home and a code red confirms that the holder is a Covid-19 infected patient and should remain in quarantine.
As part of the revival of air transport, Chinese customs have adopted emergency plans against potential contagion, according to the Xinhua news agency. Since April 1, the administration has been testing all travelers arriving from foreign countries and providing protective equipment at the main entry points to stop the spread of the virus across the borders. Tests are also conducted on the crews of the various airlines after visiting foreign countries.
Measures in the industry
If we look at the practices of the automotive sector in China, we can get an idea, or at least try to get an idea, of what the future of the industry will look like globally and what the impact of this crisis will have been on industrial work processes.
Honda's factory in Wuhan has resumed its activity under numerous safety measures, among which it is worth mentioning the implementation of temperature control points for the workforce, the placement of signs to remind people of the need to keep one meter away or the obligation to wear a mask and specific gloves. Likewise, meetings must still be held by videoconference and the rest areas have been closed in order to avoid crowding of people in common areas, with the provision of spaced stools in which to enjoy the rest. Workers, for their part, must report once a day on their health status by means of a QR code on their mobile phone, filling in forms with questions about whether they have had a cough or any other symptoms.
A similar case is that of Gestamp, which has reopened its eleven plants in China after the coronavirus crisis. The company assures that it is adapting the factories to the Covid-19 action protocols and is working to maintain the established safety distances. In addition, additional cleaning measures have been taken, cubicles have been built in the food area to make the workers safer and the temperature of the employees is taken regularly. For the time being, face-to-face meetings and external visits are still cancelled.
The automotive group PSA has also announced measures for when it reopens its manufacturing plants. These include the installation of thermal cameras at the entrance to the factories, which no employee will be able to access if their temperature exceeds 37.5 degrees. Signage has been posted at the facilities and safety distances to be respected have been marked with lines and dots on the floor. In addition to personal hygiene, the focus will also be on disinfecting common areas. To this end, the fire truck has been adapted to spray hypochlorite on roads and outside facilities, while inside the plant there will be cleaning machines and personnel with spraying bags every two hours.
What is the situation of the main aeronautical OEMs?
We analyse the actions being carried out by the main firms in the sector.
The company temporarily closed its plant in Tianjin, China, in February due to the health emergency. In a recent interview, the executive president, Guilleaume Faury, announced that it is now operational again, although without specifying how the activity is being carried out within the facilities.
Apart from its production activity, the company has been transporting medical material from China to other countries such as Germany, Spain, France and the United Kingdom.
The company believes that the first signs of a slow recovery in domestic air travel in China have begun to emerge, which would lead to the resumption of aircraft deliveries in the near future. Airbus estimated 860 deliveries to be made during 2020, but in the wake of the pandemic, it withdrew its projection. According to the CEO, the development of deliveries will depend on the level of improvement of the health emergency in China.
After adjustments for the impact of the coronavirus, Airbus estimates the following average production rates:
- A320 > 40 aircraft/month
- A330 > 2 aircraft / month
- A350 > 6 aircraft/month
- 21 net orders and 36 deliveries in March 2020
In February, the company cancelled its plan to sell 880 commercial aircraft by 2020. The new production figures represent a cut of one third from the production rate forecast before the Covid-19 crisis. If this cut is maintained until the end of the year, Airbus would stop manufacturing up to 230 aircraft. If this cut is maintained until the end of the year, Airbus would stop manufacturing up to 230 aircraft. The company also has 60 aircraft pending delivery, as customers prefer to delay them in the current situation.
The company resumes commercial aircraft production this week through the reopening of its two plants in Seattle, closed since March 25 due to the effects of the coronavirus. The activity is resumed under security measures to prevent the spread of Covid-19, such as the use of masks and other personal protective equipment, hand-washing sites and medical check-ups for employees.
As shown on its website, at the end of the first quarter of 2020, Boeing had 5,049 firm orders, 80% corresponding to 737 models, after eliminating 307 units from the forecast due to customer cancellations due to the low demand caused by the health crisis.
The American multinational confirms that it has delivered 50 aircraft in the first three months, 5 of them of the 737 models and most of them, a total of 29, of the 787 model.
After stopping production of Boeing programs on April 11, and the subsequent shutdown at its facilities in Wichita, Kansas, and in Tulsa and McAlester, Oklahoma, the company is organizing a gradual return of workers to their factories following Boeing's announcement of the reopening of its Seattle plants.
Boeing is the largest customer of Spirit AeroSystems, which produces about 70 percent of the 737 MAX, including the airframe. As a result, it will begin to gradually resume activity at its plants between April 20 and May 4.
The company, following the recommendations of the Brazilian federal government, proposed to its employees a 25% reduction in hours over the next 3 months, a measure aimed at its employees in the engineering and production line areas of its factories who would start working, where possible, from home. It also provided for the suspension of certain contracts for 60 days.
Forecasts for the future
The International Air Transport Association (IATA) estimates losses for the air passenger transport sector to reach 286.5 billion euros by 2020.
In a broader sense, the International Monetary Fund (IMF) points out that world growth will be 5.8% by 2021, considering the dissipation of the pandemic in the second half of the year, and provided that the political measures adopted around the world manage to avoid widespread company bankruptcies, job losses and financial tensions,
The agency also calls on the authorities to help develop plans for economic recovery. As all restrictions are lifted, policies should be geared towards supporting demand, encouraging business recruitment and cleaning up balance sheets in the public and private sectors.
The future as of today is extremely uncertain. The recovery of the aviation sector will be determined by the pace of de-escalation in the different countries and the degree of openness of the restrictions imposed so far.
What will certainly be necessary is the coordinated and joint work of the sector with governments to guarantee industrial capacity and adaptation to this new scenario, which will surely be part of our lives from now on.
The importance of cooperating in the definition of strategic plans and concrete measures to adapt ourselves has a global and humanitarian magnitude these days. However, the coming months will be as exciting as it will be moving to witness the resolution of this reality through the greater mobilisation of the intellect and human courage.
This virus will be stopped by all of us.