Commercial Aircraft Industry Braces for the Aftermath of the Global Pandemic

Author photo: Dick Slansky
ByDick Slansky
Category:
Industry Trends

This dilemma is not only affecting US aircraft manufacturer, Boeing, but its primary commercial aircraft industrycompetitor, Airbus, in the commercial aircraft duopoly.  The situation is very serious for both, as each faces its own liquidity crisis as aircraft deliveries cease and their production lines shut down. Moreover, the extended global supply chain for both aircraft manufacturers is seizing up, and bankruptcy looms for many sources of critical production parts and assemblies. 

Boeing has long topped the ranks of US exporters, and accounts for most of the positive ledger in our trade deficit with the rest of the world. Boeing builds all its commercial aircraft in America, and over 80 percent of its suppliers are located here, with the bulk of the company’s revenues passing through to these suppliers when the industry is functioning normally.  See Boeing Jets Could Be Part of Broad US-China Trade Deal: CEO.

But these are anything but normal times. Even if Boeing’s problems with the 737 MAX had been resolved before the onset of the global pandemic, the virtual shut down of the airlines with the flying public being grounded is going to have drastic effects on aircraft deliveries and the revenue that comes with each delivery. The last thing any carrier wants to do in this crisis is to take delivery of more aircraft while much of its fleet is already operationally grounded.  

Boeing’s cashflow was already strained with the grounding of the 737 MAX. They kept the production lines going for some time, with the MAX’s filling up all the flight line space and even taking up employee parking. They weren’t collecting any revenue on parked aircraft.  Now, all of Boeing’s produced models could be parked, because the carriers can’t take new aircraft. And neither Boeing nor Airbus, for that matter, can keep producing new planes in the absence of demand. Boeing simply doesn’t have the cashflow to keep paying for new engines, flight surface assemblies, avionics components, cabin interiors, landing gears, and all of hundreds of other parts and components required to build an aircraft.

commercial aircraft industryShare prices for Boeing and many of its suppliers are taking some real hits, and this puts further strain on their financial options, and raises some cautionary flags about the industry’s future. The current pandemic crisis will end sometime this year, but it will leave an A&D industry reeling in its wake. Currently, companies like Boeing and their suppliers are laying off workers in significant numbers. As this situation progresses, these companies may have little choice but to furlough skilled production workers and even engineers.

Even after the crisis passes, travel restrictions are eased, and the carriers can resume routes, it will take time to crank up manufacturing production lines and get the labor force back in place. Additionally, the carriers will have to start taking deliveries of new aircraft to provide revenue for Boeing and Airbus, and we can expect this to be tentative at first as the carriers recover their losses, assess their own revenue streams, and get back up to speed. The overall economy could face either a V-shaped or a U-shaped recovery, but the recovery for aircraft manufacturers could potentially be flat as the airlines struggle with resources to buy new aircraft, and companies like Boeing are unable to remain price competitive with their subsidized foreign competition.

At the time of great recession in 2007-08 the automotive industry was struggling mightily. The government at the time recognized that auto makers, like GM, were in real peril of going bankrupt. They stepped in and bailed out GM to the tune of around $50 billion. They understood that we could not lose a major part of our manufacturing, like the automotive industry, and remain competitive in the global market.  

At this juncture, another vital US industry is struggling, the commercial aircraft industry, and specifically Boeing. Just as the government stepped in to save our automotive industry in a time of great need, they need to provide significant loans to companies like Boeing and their suppliers to weather this crisis. The government needs to act fast and decisively for this industry, both to remain competitive in the global market and for our national security interests.  See “Keep Boeing and airline manufacturing afloat now to bounce back when the COVID-19 pandemic passes

 

 

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