Massive hit to the aviation industry from the pandemic.
The entire aviation industry, including airlines, plane manufacturers, engine producers, and maintenance, will be devastated from the pandemic and shutting down the economy.
4/27/20 – Wall Street Journal – ‘Welcome to Your Flight, Nathan.’ Traveling During a Pandemic Means Having the Plane to Yourself – My first, second, and third reaction was to chuckle when reading an article describing multiple commercial flights with only one passenger. The description of pilots making the standard welcoming announcement that greets the sole passenger by name is funny.
Then I shuddered in fear at the absolute devastation to the entire economy from most fights being almost empty. The financial destruction will require years of recovery.
Untold numbers of airline, ground transportation, hotel, restaurant, and food vendor companies are being shattered. Incalculable numbers of companies will not survive.
Work that collapse back to the airplane manufacturers…
4/27/20 – Seattle Times – Boeing tells workers terms of voluntary layoffs, says air travel recovery will take years – The company’s CEO stated his expectation that it will be 2 or 3 years before the volume of air travel gets back to the level it was in 2019. He expects it will take several years after that before demand for new airplanes gets back to what it was before the pandemic.
Drastic drop in air travel translates into drastic drop in need for new planes which will cause a drastic drop in Boeing production levels. That in turn will lead to substantial layoffs at Boeing which will work its way back through its entire supply chain.
He pointed out passenger count is down 95% because of the pandemic which has led to around 2,800 planes being grounded.
Imagine that staggering statistic – 2,800 planes sitting on the ground, which I will assume means somewhere around three or six less flights per day per plane. Assume about five flights as an average means there are somewhere in the range of 10,000 or 14,000 daily flights that have been canceled.
Article cites the CEOs of Delta and United saying the industry is going to shrink.
4/29/20 – Wall Street Journal – Boeing Cuts Workforce, Production in Response to Coronavirus – Boeing announced it will cut 10% of its staff. Production of the 777 and the 787 will be cut. When production of the 737 MAX is resumed it will be at a low level.
Airbus previously announced it will be cutting production by one-third.
For the thirty thousand foot view (sorry!) of Boeing’s finances, here are some data points from the article.
The company had $15.5B of cash at 3/31. In the quarter they burned through $4.7B of cash. To manage their cash they canceled a big deal with Embraer which would have cost $4.2B. They also drew down $13.8B of loans.
To see how well the cash management paid off consider what their cash balance at 3/31 would have been without canceling the deal and drawing on the loan:
- $15.5B- cash at 3/31
- -$4.2B – cash that would have been needed for acquisition
- -$13.8 – loan draw down
- ($2.5B) – cash deficit if Boeing had not cancelled the deal and drawn loans
4/29/30 – Wall Street Journal – Aviation’s Crisis Just Became Permanent – Some sort of outlook for the entire aviation industry is starting to emerge.
British Airways is planning to lay off 30% of its staff, which is 12,000 employees. US based carriers cannot lay anyone off until September as a condition of the aid package they received from Congress.
Analysts are estimating (guessing?) it will take two years for air travel to recover to the level of 2019. For Boeing and Airbus the estimate/ guess is it will take until 2023 for airplane sales to be higher than in in 2019. That is a five-year recovery time for airplane manufacturers.