Covid-19 and the 737 Max grounding have taken a heavy toll on Boeing Commercial Airplanes' third-quarter results, as the unit's operating loss deepened dramatically year on year, from $40 million to $1.37 billion. Boeing says the division's third-quarter revenue fell 56% to $3.6 billion as a result of lower deliveries because of the pandemic and quality issues with the 787. The airframer delivered 28 jets during the quarter, compared with 62 in the same period last year. The division's operating margin worsened to -36.1%, from -0.5% one year earlier, hit by lower deliveries and $590 million of additional costs related to the 737 programme. In presentation slides accompanying the results, Boeing notes that government support is critical for airlines, which are continuing to adjust fleet planning. The airframer expects passenger traffic to return to 2019 levels in about three years, and the previously seen long-term trends to re-emerge a few years after that. "Recovery continues, but remains slow and uneven," Boeing notes. To deal with the pandemic, the company as a whole has been cutting costs and says more remains to be done. "Boeing expects to continue lowering overall staffing levels through natural attrition as well as voluntary and involuntary workforce reductions, and recorded additional severance costs in the third quarter," it says. The manufacturer is not making changes to previously announced production rates of commercial aircraft but says it will continue to monitor market dynamics. Under those production rates, it will produce six 787s and two 777/777X jets per month in 2021, down from rates of 10 and five per month at present. Boeing confirms that 737 production rates will gradually increase to 31 per month by the beginning of 2022 "with further gradual increases to correspond with market demand". Analysts have suggested that both Boeing and Airbus may need to cut production further in 2021.

Airframers might cut aircraft production even further in 2021 owing to the depth of the pandemic-driven aerospace downturn, according to some financial analysts. “Aerospace manufacturer build rates will likely be cut over the next year as deliveries from Airbus and Boeing miss expectations,” says a recent report from Bloomberg Intelligence. “Airbus may need to cut its 40-a-month rate on the A320 unless demand improves quickly and significantly,” the report adds. It notes that Boeing has aimed to deliver, in 2021, roughly 450 737 Max – aircraft the company produced but has not delivered owing to the regulatory grounding. Reaching that goal “will be difficult, especially as airlines have little need for planes,” Bloomberg writes. Teal Group analyst Richard Aboulafia likewise thinks more rate cuts are possible. He notes Airbus and Boeing have been unable to deliver all the jets they are now producing. As a result, the companies are sitting on costly stockpiles of new aircraft. “It’s clear that, for a time, while there’s a surplus of already-built jets, they might just be considering lower rates,” Aboulafia says. “I think that there’s a very strong chance of it, especially on twin-aisles.” Airbus and Boeing could disclose more details about their 2021 plans in the coming days when they issue third-quarter financial results. Boeing intends to release its results on 28 October, followed by Airbus the following day. The companies trimmed commercial aircraft production rates earlier this year as the pandemic depressed demand for new jets. Airbus brought A320 rates to 40 jets monthly, down from 60. It trimmed A330 production to two jets monthly, down from roughly 4.5 monthly in 2019, and cut A350 production to six jets monthly, down from about nine monthly last year. Boeing likewise is bringing 787 production to six jets monthly, and 777 production to two jets monthly, in 2021. Prior to the pandemic, Boeing had been making 14 787s and five 777s monthly. Boeing has not specified near-term 737 Max production rates, saying only that its output will reach 31 Max monthly by early 2022. In recent days, some US airline executives have expressed optimism that demand for leisure air travel will rebound amid upcoming end-of-year holidays. Bloomberg, however, predicts “slowing leisure demand” this fall and warns of additional virus outbreaks. “Our expected delivery rates are lower than Boeing and Airbus guidance,” Bloomberg says. It anticipates Airbus and Boeing will each deliver about 30 jets (737 Max, A320neos) monthly in 2021. Bloomberg expects neither company will increase widebody production in 2021. “Demand for the largest twin-engines, the Boeing 777-9 and Airbus A350-1000, won’t rebound soon,” it says.

Source: Cirium

The coronavirus travel downturn is accelerating the retirement of aircraft that are older, less fuel-efficient, and higher maintenance, including Boeing 777 aircraft, Airbus A330 and A380 aircraft, as airline capacity may not return to pre-pandemic levels until 2024, if at all. Airlines will have to reduce costs by selling or retiring aircraft, which means that higher maintenance aircraft will be the first to go. These include Delta Air Lines and Qatar Airways' retirements of 777s, American Airlines retiring its A330s, and Air France retiring its A380s. There are a significant number of Airbus and Boeing narrowbody aircraft that were headed for retirement age even before the pandemic, president of MRO provider GA Telesis, Abdol Moabery said during Aviation Week's virtual MRO Transatlantic conference on 27 October. "[Retirements] through 2025 were already going to be 600 to 800 aircraft per year," Moabery said during the event. With airlines retiring aircraft even earlier than planned, Moabery expects "a massive surplus" of used aircraft until around 2030. The biggest challenge, he adds, will be for the manufacturing and aftermarket sectors to "coexist in the same industry with this amount of material". A silver lining of oversupply in used aircraft and parts is the potential for "airlines [to] enjoy significant access and cost savings because of availability" Moabery says. Cost reduction during the uncertainty of the pandemic means "the idea of sustainability is going to come back even stronger" as airlines will increasingly consider not just fuel burn but supply chain and MRO costs, Airbus senior vice-president of customer support Valerie Manning said during the online discussion. While the MRO sector is poised to recover faster than air travel due to maintenance costs, airlines must also be able to reduce expenses to ensure their ongoing survival, Carlyle Aviation Partners president Robert Korn said during the conference. "Replacing new aircraft parts with used aircraft parts is one way to let the process go at lower costs without affecting labor costs or reducing other people's margins," Korn says. The retirement of long-haul 777 aircraft can be partially explained "since that mission is not as demand", Korn said, while noting that the long-haul A350s and 787s "are fantastic aircraft". The lack of demand for international travel is much less of a factor than high maintenance costs, says Cirium aviation analyst Syed Zaidi. "The 777 overhaul costs are among the highest in the industry for any aircraft type, and A330s are in oversupply with many younger aircraft available," Zaidi says. "The result is the older A330s and 777s getting retired sooner than originally anticipated and being replaced with newer generation, more economical widebody aircraft like the A350 and 787." Many airlines are retiring their A380 fleets sooner than they intended, Zaidi says, because there is "little to no secondary market prospects and the aircraft is out of production sooner than Airbus had initially anticipated resulting in long-term residual value impact". Aircraft including A320s, however, are considered by Carlyle's Korn to be more versatile and less likely to be retired in the coming years. "There will always be demand for [A320] aircraft", he says.

Source: Cirium