The economic crisis caused by the coronavirus is also threatening the aviation industry. While Boeing’s production of commercial aircraft is virtually at a standstill, Airbus intends to downsize production. EURACTIV’s partner La Tribune reports.
Avolon, the world’s third-largest aircraft rental company, cancelled an order on Friday (3 April) for 75 Boeing 737 MAX aircraft to be delivered by 2023, as well as four Airbus A330 Neo aircraft to be delivered by 2021.
While these are the first major aircraft order cancellations, they are unlikely to be the last given the unprecedented crisis currently faced by aviation companies.
Avolon has nevertheless retained an option on another 16 737 MAX but has postponed delivery for 2024 and beyond.
The aircraft leaser also postponed delivery of nine Airbus A320 Neo aircraft to 2027 and subsequent years, to be delivered between 2020 and 2021. As a result, Avolon’s order book for the 2020-2023 period has been reduced from 284 to 165 aircraft.
“No aircraft purchases in the next six to nine months”
This announcement marks the start of a period of great turbulence for the aeronautical industry. With air transport almost completely shut down for two or three months and a recovery that looks set to be both long and difficult, airlines are just trying to survive.
Carriers are now targeting more cash preservation measures such as short-time work, and postponement of investments, as well as negotiations to obtain financial aid from their respective governments rather than purchasing new aircraft.
This means that requests for cancellations or postponements of deliveries are multiplying.
According to the Director-General of the International Air Transport Association (IATA), Alexandre de Juniac, “no airline company is going to buy aircraft over the next six or nine months”. Companies with outstanding orders are also at risk of bankruptcy, as governments will not be able to help all carriers.
If this bleak outlook holds, aircraft manufacturers will be deprived of the cash inflow that comes with aircraft deliveries, since most of the aircraft’s price is paid at that time.
And while the lack of order intake will also deprive them of pre-payments, another danger for Airbus and Boeing is that bankruptcies and capacity cuts by some airlines will increase the volume of second-hand aircraft which will be competing with new aircraft.
Airbus plans to reduce production
As a result, lower production rates are to be expected.
Airbus, which before the COVID-19 crisis was studying the possibility of increasing its production of the A320 series, is now considering halving it for the next three to six months, according to Reuters.
The European conglomerate has asked its suppliers to slow down their deliveries by 40%, at a rate compatible with the production of 36 aircraft per month in the short term, compared with 60 before the COVID-19 crisis.
A reduction in production rates for A350 and A330 wide-body aircraft is also on the cards, which will significantly affect employment.
According to Reuters, short-time working measures in France and Germany are under consideration. To weather the storm, Airbus recently announced measures to strengthen its liquidity position and has €30 billion in cash at its disposal.
Production was suspended in France and Spain for four days in March in order to put in place necessary health and safety measures to deal with the coronavirus and Airbus has now announced a further temporary suspension at its German sites in Bremen (from 6 to 27 April) and Stade (from 5 to 11 April).
It will also freeze activities at its Mobile site in the US, which assembles A320s and A220s, until 29 April.
Airbus highlights a “high” level of inventory at the sites, as well as “the various government recommendations” that impact production activity.
All Boeing’s civil aircraft production shut down.
As for Boeing, the impact of the coronavirus adds to the 737 MAX crisis, which has already cost the company $18 billion. The production of civil aircraft production is now at a standstill.
While production of the 737 MAX has been halted since January, the group also suspended its activities in Washington State on 25 March due to containment measures.
This concerns its Everett plant, which assembles its wide-body aircraft (777, 747, 767 and part of the 787). While, the suspension of these two sites was extended on Sunday “until further notice”, the measure was extended on Monday to the 787 assembly site in Charleston, South Carolina.
A fortnight ago, Boeing was hoping to restart production of the 737 MAX by June, virtually at the same time as the flight ban is expected to end.
These hopes are surprising, to say the least, given the market situation. All the more so as the American aircraft manufacturer already has close to 400 operational aircraft, whose delivery to the airlines is obviously compromised. Moreover, uncertainty remains about the level of apprehension of passengers to board this aircraft.
Last week, Boeing announced the launch of a voluntary departure plan, without specifying its scope. In mid-March, the manufacturer asked for a $60 billion aid plan for the American aerospace industry.
According to Boeing boss Dave Calhoun, it is essential to “maintain the stability of [the] supply chain to be ready to restart once the pandemic is over”. Boeing and its supply chain account for a total of 2.5 million jobs in the US, according to Boeing.
[Edited by Sam Morgan]