How will aviation companies take off?
Created on 05 May 2020
Wraps up in 4 Min
Read by 2k people
Updated on 28 Aug 2020
The Aviation Sector in Coronavirus
The Coronavirus Disease or popularly known as the COVID19 crisis had forced the entire world to lockdown and halt. All the economic activities have stopped. Even before the lockdown, the first reaction of the people was to cut down their international and later domestic travel plans. The aviation industry, which transports most people in the world across borders, was the first to face the brunt. How Airbus and Boeing, the two largest aircraft manufacturers are dealing with it? This article elaborates the discussion on these issues.
The Aviation Industry
The first thing that people were supposed to stop in the times of COVID19 was the travel. Even in India, we can see that Indian Railways, the lifeline of the country, stopped its operations on March 24, 2020. In these times, the aviation industry was no exception. It had to ground all its planes.
The scenario was the same all over the world. The flight operating companies had no cash flow. They had to refund their already booked passengers. The grounding charges have to be paid to the respective airport until the flights are operational again. They will also have to keep paying their pilots and support staff.
The Indian Bioscope
In the Indian context, things are grimmer for the industry. The economic slowdown of the past two years has started seeing a reduced number of passengers. Jet Airways already perished, though reasons were many. Other airlines too were easing on their ambitious expansion plans.
In the COVID19 crisis, aviation companies have already cut their workforce and their paycheck. They were not ready to offer refunds but only rescheduling until the Directorate General of Civil Aviation interfered.
Now such companies like Indigo, AirAsia, Spicejet, or GoAir would no more need new planes, at least until the lockdown resumes. This lockdown has hit these companies hard on the cash flow and they might not be able to buy the planned number of planes as earlier. The orders might be cut or even canceled.
The worst part is that though the aviation industry was the first to get affected, it is only going to be last to revive. Even in the aftermath of COVID19, people would prefer less travel especially internationally.
This drives the case of what is going to happen between the two major aircraft manufacturers- Airbus and the Boeing.
Airbus and Boeing
As one can understand that there is no demand for travel, hence there is no demand for planes. For instance, Indigo Airlines India planned for 104 new planes in the next two years. After the pandemic, the scenario has changed.
Order inflows have not exactly dried up for Airbus or Boeing but the cancellations exceed the new orders. In March 2020, Airbus received 60 orders but the previous 44 of them have canceled their orders.
The European Airbus has drastically changed its innovation plans. It has shelved its hybrid fuel commercial jets projects named E-Fan X, which was scheduled to take its first flight in 2021. Also, it has also deferred its plans to open a new small flight manufacturing unit in their headquarters in Toulouse, France.
Airbus was ambitiously planning to revamp its A380 aircraft and develop a second-hand market for that. This one venture that was too lucrative for emerging markets like India. This project would have helped Indian aviation companies to grow better. They have also faced this blow.
The ordeal is huge for the American Boeing. They received only 31 orders but 150 previous orders have been canceled. This leaves them in a state of peril. They already had a poor year in 2019 owing to Boeing 737 MAX aircraft malfunctioning that led to two worse plane crash incidents. The already dipping reputation served in combination with depleting orders through the crisis.
Boeing was in plans to buy the jet manufacturing Brazilian firm ‘Embraer’. However, Boeing has now backed out of this deal. Embraer blames Boeing’s inability to pay the purchase price owing to its loss of a billion-dollar revenue due to fatal crashes of Boeing 737 MAX.
Airbus seems to be in a better position than Boeing but the end of Boeing would lead to the near-monopoly of Airbus due to the absence of big players in the market. This will affect the aviation industry, as the prices would rise, ultimately making aviation less attractive in emerging markets like South Asia and South East Asia.
One thing is undeniable the aviation industry is seeing its worst time globally. The emerging markets will be affected the most. On a bad note, Warren Buffet and his Berkshire Hathaway have pulled out all their investments from Delta Air Lines, American Airlines, Southwest Airlines, and United Airlines. Indigo Airlines has lost 25% and SpiceJet has lost 60% of the peak value since the pandemic started.
The software developers use a particular data structure known as the ‘Stack’. Like any ordinary stack, the one that goes in first will come out at last. It looks like the aviation industry will face the same fate. It is amongst the first ones to get in trouble and perhaps the last one to get out of this crisis owing to its depleting cash flow. This pandemic is testing our resilience.
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