Air Canada is retracting financial guidance and cutting operations as the global coronavirus pandemic hits airlines, while asking the Canadian government to help with financial losses it expects to suffer in the coming months. “The crisis facing our industry is worsening as countries around the world adopt increasingly severe measures, national lockdowns and travel restrictions,” writes chief executive Colin Rovinescu in a statement on 16 March. “We understand that the governments of the United States and many European countries such as Germany, France, Italy, Norway and others have approved or are considering assistance for their airline industries in one form or another. Under these circumstances, we believe that the Canadian airline industry should also see similar assistance, whether through forbearance of taxes, landing fees and other charges that form part of the aviation burden in Canada or otherwise until the industry stabilises,” he says. The Montreal-based flag carrier also says it is withdrawing earnings guidance for 2020 and 2021, and suspending 50% of its capacity in the second quarter of this year. “Although the company expects this disruption to be temporary, as the full impact and duration of the outbreak is unknown, Air Canada is withdrawing its previously announced first-quarter and full-year 2020 guidance as well as its full-year 2021 guidance (including its free cash flow guidance for the 2019-2021 period) while it takes steps to mitigate the financial impact on its business,” the airline says. While the airline’s current cash liquidity is at about C$7.1 billion ($5.1 billion), it says it will be working “with its aircraft partners in exploring the potential deferment of aircraft deliveries” in order to preserve cash if the crisis drags on. The carrier says its capital expenditure in 2020 was planned to be C$2.4 billion, but will now be lower. “This includes purchase commitments for 17 Airbus A220 and six Boeing 737 Max aircraft totaling approximately $1.2 billion, which are still expected to be delivered and, subject to satisfactory lending arrangements, financed in 2020,” the airline says. Last week, the airline said it would be cancelling 11 of the Max orders, which had planned to be delivered in 2023 and 2024, after it reassessed its long-term fleet planning requirements in the wake of the troubled aircraft’s year-long grounding.

Source: Cirium

The coronavirus pandemic, combined with the 737 Max grounding, could leave Boeing facing challenges more significant than it has experienced in perhaps 50 years, say some aerospace analysts. Still, the diversification of Boeing’s business should provide some cushion from commercial transport woes, they say “Put this all together, this could be potentially the greatest challenge facing Boeing since the early 1970s recession,” says Kevin Michaels, managing director of aerospace consultancy AeroDynamic Advisory. Michel Merluzeau, an analyst with consultancy AIR, says the pandemic “comes at the worst, worst possible time” for Boeing. “The impact on the industry is enormous,” says Merluzeau, who nonetheless remains optimistic. “Once this crisis is over, [airlines] will bring that capacity back online, and things will return to a near-normal situation.” Experts note the coronavirus has placed similar pressure on Airbus. But Boeing was struggling with the 737 Max before the pandemic spurred travel bans and drove airlines to ground hundreds of aircraft. In recent days, airlines globally have grounded or announced plans to ground what amounts to thousands of jets, including both narrowbodies and widebodies. Many governments have banned swaths of international travel. Delta Air Lines alone will ground 300 aircraft. United Airlines will cut capacity by 50%. Norwegian will suspend 85% of flights and layoff 90% of staff. Virgin Atlantic will ground three-quarters of its fleet. EasyJet warns it might ground most its aircraft. The list goes on and on. The US airline industry has responded by asking the US government for $50 billion in government support, and President Trump has already said he intends to “help” carriers. Fitch Ratings recently placed Boeing on “rating watch negative”, citing the 737 Max grounding and coronavirus impacts. And Boeing reportedly intends to draw down a nearly $14 billion loan. Boeing did not respond to requests for comment about its financial health or whether circumstances might lead it to consider requesting government aid. However, the company did address challenges the industry is facing in a brief statement on 16 March. “America’s aerospace industry – which supports over 2.5 million jobs and 17,000 suppliers – is facing an urgent challenge resulting from the coronavirus pandemic,” it says. ”The long-term outlook for the industry is still strong, but until global passenger traffic resumes to normal levels, we’re taking steps to manage the pressure on our business. We’re leveraging all our resources to sustain our operations. Meanwhile, ready short term access to public and private liquidity will be one of the most important ways for airlines, airports, suppliers and manufacturers to bridge to recovery, and we appreciate how the Administration and Congress are engaging with all elements of the aviation industry during this difficult time.” Merluzeau adds: “The US government will not let Boeing fail. Boeing is a national security asset. Boeing is a good chunk of the US GDP”. Despite the magnitude of the crisis, Michaels suspects the coronavirus might not affect Boeing as significantly this year as it might have if the Max were not grounded. That is because Boeing was already not delivering 737s, and the jet’s supply chain had slowed. Prior to the pandemic, AeroDynamic had estimated Boeing would deliver just 90 Max in 2020. “They had already readjusted their expectation and the supply chain is already down,” Michaels says. “So, what’s happening here does not necessarily have the impact that it would have on them in normal times.” Still, he and other analysts note that airline purchase contracts historically include clauses allowing airlines to cancel orders should aircraft be grounded more than one year. Whether Max customers have such clauses in purchase contracts, and details of such clauses, remain unknown. And, downturn aside, analysts expect airlines will eventually need the thousands of Max they have on order. Perhaps more concerning for airframers like Boeing and Airbus is fresh pressure on widebodies, a segment soft before the pandemic. Airbus recently announced A330 production cuts, and Boeing had already planned to cut 787 production. Analysts say more 787 or A330 production cuts are possible, as are A350 cuts. The virus could also delay Boeing’s plans to ramp production of the 777X, an aircraft the company hopes will be certificated in 2021, says Teal Group analyst Richard Aboulafia. Merluzeau fears the air travel downturn could put “a very serious dent in the 787 business case”. He suspects some carriers, particularly widebody low-cost carriers such as Norwegian, could be most impacted by falling travel demand. Further depressed widebody demand puts more pressure on Boeing to get the Max certificated, a milestone the company hopes to achieve by mid-year. “Boeing is in a very, very strenuous situation,” Merluzeau says. Michaels suspects Boeing has not faced challenges so daunting since a recession around 1970. The company’s headcount tumbled from 100,000 in 1967 to 40,000 in 1971, he says. The entire industry suffered in those years, with global commercial jetliner production tumbling two-thirds in four years, from 741 in 1968 to 238 in 1972, he says. “I’m not suggesting that’s what going to happen here. But I’m suggesting it’s the worst crisis since then,” says Michaels. But in the early 1970s Boeing was primarily a commercial aircraft maker. Not anymore. Today’s Boeing is diversified. Boeing Defense, Space & Security, for instance, generated $26 billion in 2019 revenue – one-third Boeing’s total, according to financial filings. Also, defence work accounted for about half the $18 billion in revenue generated last year by Boeing Global Services, Michaels says. “Boeing is a different business today,” he says. The defence work “is not subject to the harsh winds that are about to come”.

Source: Cirium

Scandinavian operator SAS is to suspend most of its operations, after declaring the demand for international air travel to be “essentially non-existent”. It will temporarily reduce its workforce by 90% – some 10,000 personnel – while the crisis situation persists. SAS says the traffic will be restored when “there are yet again conditions to conduct commercial aviation”. From 16 March the airline will virtually ground itself, although it will attempt to maintain sufficient service to enable passengers to return from certain destinations. It will be at the disposal of the authorities to on their behalf take home stranded citizens or maintain infrastructure important to society, as far as possible,” it states. “The reductions will be implemented through all parts of the operation, according to national regulations.” SAS operates a fleet of 158 aircraft, including 17 long-haul jets and 32 wet-leased regional aircraft. The company had 55 aircraft on order at the end of January. At that point it had just started taking delivery of Airbus A350s as part of a modernisation plan for its long-haul fleet, and was working towards a renewal of its mid-sized Airbus A319 and Boeing 737 operations.

Source: Cirium