Business Recovery » Aviation fears long-term impact of pandemic on innovation and industry rebound

Aviation fears long-term impact of pandemic on innovation and industry rebound

Pandemic-hit cash flows squash new projects, jeopardise recovery

Industry participants fear UK aviation may face insurmountable challenges, with new projects completely shelved.

In January 2020, 296 new aircraft were ordered – the highest record ever seen for the first month of the year, amounting for more than five times higher than in January 2019. Confident that demand would continue to surge, the ADS Group had forecasted a rise to 1408 deliveries at the time, in which airline manufacturers responded by rising production rates.

Source: ADS Group

Today, that once-optimistic manufacturing aerospace industry is struggling to remain resilient due to the damaging impact of coronavirus on aircraft demand, explains Paul Everitt, chief executive at ADS Group.

“Each aircraft is quite expensive. The complexity and cost of the materials that are required are quite substantial. There is a lot of money tied up in work in progress, in most cases,” he says.

“They had been spending on investing in new capability and capacity, spending on materials to meet requirements they thought they would have to meet. Many of them have also been stockpiling for Brexit contingencies. Many had already stretched their finances to do that.

“The feedback we are getting from our members is that many have not accessed or cannot access some mechanisms of what the government has set up.”

On a global scale, Boeing has reported a $11.9bn annual loss in 2020 due to the pandemic’s impact on commercial air travel and the 737 MAX grounding.

Even if demand was to bounce back, Everitt yet believes manufacturers would fail to meet the demand of consumers due to lack of capital.

“They went from a bullish outlook to producing far less,” he says. “They are not getting any new money in.”

New restrictions put into place by the UK government, such as the end of all travel corridors for all passengers arriving in the UK, have also accentuated the difficulty faced by the aviation industry.

Wizz Air, however, remains one of the few airlines convinced it will have sufficient liquidity to stay afloat during this period.

“We have a very strong liquidity to last up to two years if all our aircraft were grounded, and as a precautious measure, given the unpredictable nature of the pandemic, we also recently announced our debut bond offering of €500m at favourable terms which we intend to use to further strengthen our liquidity position,” said the airline’s CFO Jourik Hooghe, via email.

The company has also expanded its network from 25 bases pre-coronavirus to 40 bases to ensure a strong push once restrictions lift, according to Hooghe.

“Our recent growth in the UK positions us well for the rebound of travel when restrictions are eased. We are capable of recovering quickly, as demonstrated last summer when Wizz Air UK was operating at 100 percent of its pre-coronavirus capacity,” he added.

In 2020, the low-cost airline company’s revenue totalled €2,761.3m, compared to €2,319.1m the previous year whilst net cash generated by operating activities reached €771.9m in 2020 and €742.7m in 2019.

Wizz Air’s resilience throughout the pandemic follows the collapse of British competitor Flybe, which entered administration in March last year.

This month alone, the volume of UK flights has decreased by 80 percent and has dropped by 60 percent across Europe, in comparison to 2019, according to the Airport Operators Association (AOA).

Aircraft production also took a hit. In late March 2020, Airbus announced it was temporarily reducing its production of wings within countries such as the UK.

Brexit repercussions are also yet to come, according to Everitt.

In a joint letter to the Prime Minister and Chancellor, the aviation and aerospace industries urged the UK government to introduce a recovery plan aimed at preserving Jet Zero ambitions, preventing further redundancies, and ensuring operational efficiency of air travel.

Everitt warns the impact of the health crisis could be fatal in the advancement of net-zero aviation, which requires large investments into new technologies and therefore significant funding.

To remain operational and ensure innovation projects fall into place, the industry will require an alternative form of capital of funding, according to him.

“We need a long-term, more patient, capital funding for those businesses so that they can mitigate the current shortfall in revenues and costs that they have to meet, but also to ensure that they have the resources to invest in technologies that are going to be relevant to the future,” he says.

The current mishmash of international measures will need to be reviewed.

“We need to get people flying again. The immediate level of demand needs to increase for us to be sustainable” says Everitt. “To do that, we need the UK government to be working with its international colleagues and partners to create an agreed mechanism for testing and vaccines.”

“The challenge is that there isn’t a common approach to health and aviation,” adds Henk Van Klaveren, spokesperson at the AOA.

The UK government must also safeguard the industry’s competitiveness, according to Everitt, as the industry will face additional costs due to the exit of the European Union.

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