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What economic impacts of COVID-19 on Major Aircraft manufacturers

What Economic Impacts of COVID-19 on Major Aircraft Manufacturers? - By Ahmed Haouaria

26 Avr 2020
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Since 31 December 2019 and as of 26 April 2020, 2 844 712 cases of COVID-19 in accordance with the applied case definitions and testing strategies in the affected countries have been reported, including 201 315 deaths.

One billion people in the world are confined,the global economy is collapsing, Europe, after China, is paralyzed. 

The largest airlines have grounded their aircraft. Thousands are consigned to parking lots everywhere. 

Staff are unemployed or laid off. And the manufacturers have ceased all activity for several days to organize the protection or containment of their employees. How far will this cataclysm take Aircraft manufacturers ?

 

Boeing and Airbus: Two giants facing  the same invisible enemy: COVID-19 

For Airbus alone, more than 7,500 aircraft ordered are theoretically supposed to deliver in the coming years. Boeing, with slightly fewer unfilled orders (5,400), is combining the B737 Max crisis with that of COVID-19.

It is indeed sadly foreseeable that air transport companies will take a long time to return to the level of activity, then growth, which we knew at the end of 2019. Who will survive? At what level? What will be the fate of the hundreds of thousands of industry employees at risk of losing jobs with manufacturers and their subcontractors?

Boeing and Airbus are the two largest aircraft manufacturers in the world. The two companies, in particular, produce the highly prized jets of the Airbus A320 and the Boeing B737, which was long the best-selling aircraft in the world before the problems of the B737 Max in 2019. 

The flagship of Boeing is grounded since March 2019, following two disasters in which it has been demonstrated that the aircraft, which has been modernized several times, but not at the level of an aircraft like the A320, no longer meets ICAO, international safety standards. It does not meet the requirements that have constantly evolved since the certification of the first model in 1967, nor does it comply with the obligations to which its new model should have complied as of 2017. The management of the American giant in Seattle seems to have largely underestimated the dangers.

Faced with the concern of seeing its responsibility considered, the FAA, Federal Aviation Administration does not approve the model flight resumption based on the modifications proposed by Boeing, which incidentally are largely below of what would be reasonable.

Airbus: No short-term cancellations, however, requests for postponements and orders delays

Airbus is not immune to the Covid-19. The European industrial champion is hit hard by the effects of the global pandemic. The aircraft manufacturer has announced unprecedented cuts in production rates which will be effective in the coming weeks. The firm estimates that the drop represents a reduction of about a third of production compared to that before the coronavirus crisis. A320, the best-selling airplane will only be produced at 40 units per month compared to 60 per month currently. Long-haul flights are affected even more proportionately. The A350 will only be released at a rate of six aircraft, compared to around 10 a month currently. The A330 will no longer be produced in two copies per month, 24 per year against 40 so far.

Airbus is seriously taking the consequences of the crisis that has hit airlines for several weeks already. Airbus states that even if there are no short-term cancellations there are many requests from airlines for postponements and delays in 2020 and sometimes in 2021. The firm thus decided not to produce these planes which will not be delivered in 2020. This is why the production rates will systematically drop. Major Airbus customers have almost grounded all of their fleets of passenger-carrying aircraft, keeping a few aircraft to repatriate their compatriots.

In the first quarter of 2020, the group was pleased to have delivered 122 aircraft. However, the company acknowledged that an additional 60 aircraft left the lines but could not be delivered due to the pandemic. The drop in deliveries was brutal. If the group delivered 55 aircraft in February, the figure fell to 36 devices in March.

The four assembly sites are preserved. The group must, therefore, reorganize on an industrial level, in particular for the assembly of its flagship aircraft, the A320. Currently, Airbus still plans to rely on all of its industrial sites around the world, in Toulouse in France and Hamburg in Germany, in Mobile in the United States, and in Tianjin in China.

Airbus is seriously taking the consequences of the crisis that has hit airlines for several weeks already. Airbus states that even if there are no short-term cancellations there are many requests from airlines for postponements and delays in 2020 and sometimes in 2021. The firm thus decided not to produce these planes which will not be delivered in 2020. This is why the production rates will systematically drop.

Will Boing 737 Max concern and COVID, combined, slam the aerospace giant?

Boeing has now suspended all production of commercial aircraft, having announced the suspension of its operations at the North Charleston FAL where the 787 Dreamliner family was still assembled.After having extended for an indefinite period the suspension of its activities in Washington State due to the coronavirus pandemic, Boeing announced a similar measure in its FAL of North Charleston in South Carolina, dedicated to the production of Dreamliner: all operations are suspended there from Wednesday, again for an indefinite period.The suspension was already in place for the assembly lines of wide-body aircraft 767, 777, and 787 at Everett, as well as that of the 737 at Renton - where production had already been halted since early January. During this period of suspension of the 787 program, Boeing will continue to conduct improved clean-up activities at the site and to monitor the global supply chain as the situation evolves. When the suspension is lifted, the 787 program will take an orderly approach to restart production with a focus on safety, quality, integrity, and meeting customer commitments.

Boeing to terminate a joint venture agreement with Brazalian competitor Embraer

 After years of discussions and legal and political obstacles, the American aeronautical manufacturer recently indicated, to give up resuming the civil activities of its Brazilian competitor Embraer. According to a memorandum signed in July 2018, Boeing was to take control, 80%, and for $ 4.2 billion, of a joint venture comprising the division of Embraer producing commercial aircraft from 30 to 150 seats. A second joint venture was to be responsible for marketing the Brazilian group's C-390 military aircraft, which also manufactures business jets.While the transactions were to be finalized by April 24, Boeing exercised its right to terminate it in so far as Embraer did not meet the necessary conditions, the American group said in a statement without specifying the missing criteria. New test for BoeingThe proposed merger deal was announced a few days after the entry into force of the partnership between Airbus and the Canadian Bombardier, which allowed the European to take control of the program of the C Series medium-haul aircraft. The deal was to allow Boeing to compete with its main rival in the regional aircraft segment. At the same time, it was to allow Embraer to benefit from Boeing's commercial strike force.The merger project had received the green light from all the involved authorities, except that of the European Commission. The latter, fearing that the proposed transaction would remove the third-largest player in the world market in the already highly concentrated sector of commercial aviation. If Boeing does not specify the reasons for the abandonment of this deal, it intervenes at a difficult time for the aircraft manufacturer.The Covid-19 pandemic has reduced air transport to fright and companies are multiplying cancellations or postponements of orders.

Covid is plunging Boeing into an unprecedented major economic crisis

Boeing corporation reported this Wednesday having suffered a net loss of 636 million dollars in 2019, the first in 22 years.

The value of the company has dropped 61% on the New York Stock Exchange since the start of the year. To survive the pandemic, the group recently asked the federal government for $ 60 billion for him and his 17,000 US contractors. Embraer also goes through a bad patch. At the end of March, it had reported significant losses in the fourth quarter of 2019 and had given up on announcing targets for 2020 due to the uncertainties linked to the impact of the pandemic on the aeronautical industry. Since January, its share on the Sao Paulo Stock Exchange has fallen by almost 60%.

 

 

 

 

 

 

 

 

 

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