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Industry Groups, Aerospace Analysts Come to Grips with Impact of ‘Worst Year in the History of Aviation
By Michael C. Gabriele
The Covid-19 global pandemic has had a historically negative effect on the commercial aerospace industry. Numbers offer a stark outline of the financial fallout from the novel coronavirus in 2020, but an even darker story is the number of job losses and staff cuts at airlines, aerospace manufacturers, and companies in the global supply chain, including the titanium industry.
What are the industry numbers? In June, the International Air Transport Association (IATA) issued a forecast that reported airlines are expected to lose $84 billion this year. In addition the IATA said 2020 revenue would likely fall to $419 billion compared with $838 billion last year. The IATA estimated that 7.5 million flights were cancelled from January to July.
The IATA (www.iata.org), with headquarters in Montreal, is the trade association for the world’s airlines, representing 290 airlines or 82 percent of total global air traffic. The IATA is led by Alexandre de Juniac, director general and chief executive officer, who offered a chilling perspective on the June forecast. “Financially, 2020 will go down as the worst year in the history of aviation,” de Juniac declared.
He did consider a way forward for the commercial aerospace industry in 2021. “Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us. A key to the recovery is universal implementation of the re-start measures agreed through the International Civil Aviation Organization (ICAO) to keep
– Edmund S. Greenslet, publisher of The Airline
Monitor newsletter
passengers and crew safe. That’s an important part of the economic recovery because about 10 percent of the world’s GDP is from tourism and much of that depends on air travel. Getting people safely flying again will be a powerful economic boost,” de Juniac said.
Deloitte Services LLP, New York, shared insights and projections in a mid-year forecast on how Covice-19 is likely to affect commercial aircraft production in the near term. Robin Lineberger is Deloitte’s U.S. and global aerospace and defense leader and a principal with Deloitte Services LP. His career includes 35 years as a consultant to the aerospace and defense industry. Deloitte’s midyear forecast anticipated a prolonged recovery for commercial aerospace, while the defense sector remains resilient
“According to our previous outlook, the commercial aerospace sector was expected to recuperate in 2020 after experiencing a decline in production in 2019. However, the COVID-19 crisis has significantly reduced both domestic and international passenger traffic, which, in turn, affected deliveries and order books,” the Deloitte report explained. “As a result, the U.S. commercial aerospace sector is preparing for a weak second half of the year.”
“With global passenger traffic possibly taking as long as three years to recover to pre–COVID-19 levels, aircraft deliveries are likely to decline more than 50 percent in 2020 compared with 2018—the peak year for deliveries, significantly affecting the U.S. commercial aerospace sector. U.S. defense, however, has not had a major impact, as military projects remain a strategic priority and the nation continues to focus on strengthening its defense industrial
base (DIB). To ensure minimal business disruption amid the pandemic, the Department of Defense is using several measures, such as classifying the sector as a critical infrastructure sector and enhancing liquidity for defense contractors.”
The Deloitte report weighed the impact of the global pandemic on commercial aerospace jet deliveries and order booking in 2020. “After experiencing solid growth in passenger traffic over the past decade, air travel has come to a near-standstill, with the COVID-19 pandemic substantially eroding passenger travel demand in just the first few months of 2020. While commercial air travel is down 90 percent globally from a year ago, airlines have taken out over 30 percent of their capacity as a result of the pandemic. In North America, the decline in passenger traffic in 2020 is projected to be slightly more than 50 percent from the previous year, in line with the impact on other regions.”
“A prolonged decline in passenger demand is likely to result in fewer orders and deliveries for original equipment manufacturers (OEMs) in 2020, especially for long-haul aircraft, negatively affecting the U.S. commercial aerospace sector. In 2020, global commercial
aircraft deliveries are estimated to be in the range of 650–690 aircraft, a decline of more than 50 percent from 2018, the peak year for deliveries. Aircraft production rates in the United States are being reduced, as several airlines have already announced order cancellations and deferrals. The impact could also be seen on the extended commercial aerospace manufacturing supply chain (the titanium industry), especially on mid-to-lowertier suppliers, which may struggle due to the OEM rate reductions.”
As for the U.S. defense aerospace sector, Deloitte observed a relatively stable business environment. “The U.S. defense sector is not expected to be significantly affected by the COVID-19 pandemic, as military projects remain a strategic priority for the United States. Moreover, the United States continues to focus on strengthening its defense industrial base (DIB), with defense budgets reaching pre-sequestration levels. Although the rate of growth may decrease or flatten in 2020, the United States’ emphasis on firming up its military capabilities is expected to result in relative stability in the defense sector. The Department of Defense is also ensuring that the DIB remains resilient amid
the pandemic, with minimal disruption, especially for critical defense programs. However, the pandemic may lead to a temporary disruption in the defense sector supply chains, which are global and diversified in nature. As a consequence, minor near-term cost overruns and schedule delays could be expected.”
Edmund S. Greenslet, the founder of ESG Aviation Services, Ponte Vedra Beach, FL, and the publisher of The Airline Monitor newsletter—a widely used source of information in the titanium industry—offered his assessment of the current commercial aerospace business environment in the executive summary of his June report. “There is a saying about forecasting that today does not seem like the silly thing it was meant to be. It goes like this: forecast frequently, but never about the future.”
The New York Times, in June, reported that Boeing received Federal Aviation Administration (FAA) approval to start test flights of its 737 MAX to demonstrate that it can fly safely with new flight control software. The MAX was grounded in March 2019 after a pair of fatal crashes. “If the flights are successful, it could still be months before the planes are deemed ready to fly again. If the FAA identifies further problems, Boeing may need to make additional changes.”
Greenslet pointed out that, given the business difficulties associated with Covid-19, Boeing’s MAX is no longer the central issue facing the commercial aerospace industry. “Indeed, I suspect that many airlines might just as soon see it remain grounded for a while as they do not need the capacity or the financial costs of taking the deliveries. The impact of Covid-19 on the airlines cannot be overstated as it has taken us into territory we have never seen, and that leads us to our discussion of the state of, and outlook for, world traffic and airplane requirements.”
Airline Monitor offered extensive models on the potential recovery of commercial aerospace. Greenslet compared the business downturn in 2020 to previous declines in the airline traffic. “Look at the record when world traffic declined (3.3 percent in 1991, 2.8 percent in 2001 and 1.2 percent in 2009). Then see how quickly traffic recovered (up 12.9 percent in 1992, 14.4 percent in 2004 and 9.3 percent in 2010). Now compare that to what
we see this year with traffic down almost 44 percent (in 2020), then rebounding almost (projected) 53 percent in 2021. That looks like the same pattern as those earlier years, but there is a big difference. In the three previous declines the rebound took total traffic above what it was before the down year, but even after a (projected) 53-percent rise in total revenue passenger miles (RPMs) next year the world number is still about 13 percent below what it was in 2019. Then despite a healthy 7.7 percent increase (projected) in 2022, the world total remains 7 percent below last year; it would take another seven to eight percent growth year in 2023 to get back to the 2019 level.
In this forecast model, Greenslet said he chose to be an optimist with double-digit growth in 2023. “This is not without precedent and serves to return the industry to its pre-virus level. However, what it does not do is make up for the growth lost over the years 2020 through 2024 as that latter year is still 14 percent below what we estimated in June 2019, and that in turn reduces the number of passenger aircraft in the world fleet by almost 4,000 airplanes. Covid-19 will, we believe, cast a long shadow as the forecast now projects 3,000 fewer deliveries for the years 2020 to 2040, and if there is no above-average growth year like we have in 2023 then that number of airplanes needed becomes even lower.”
Separately, The New York Times, in a June 30 article, reported that Airbus announced would cut nearly 15,000 jobs across its global work force, which would be the largest downsizing in the company’s history. Due to the coronavirus pandemic, airlines are now planning for years of reduced passenger demand, and this means less need for new planes. Citing a 40 percent slump in commercial aircraft business activity and an “unprecedented crisis” facing the airline industry, Airbus said it would slash around 10 percent of its jobs worldwide.
The Times reported that Guillaume Faury, Airbus chief executive officer, in a series of recent memos, warned it would be necessary to adapt to a “lasting decline” in the demand for airliners. The company said Tuesday that it didn’t expect air travel to return to previrus levels before 2023 and potentially not until 2025. “Airbus is facing the gravest crisis this industry has ever experienced,” Faury said in a statement. “We must ensure that we can sustain our enterprise and emerge from the crisis as a healthy, global aerospace leader, adjusting to the overwhelming challenges of our customers.” n
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