Wings Over Québec

This famous second wave of COVID-19 has happened and it is indeed worse than the first. Sadly, we’ll be forced to talk about the pandemic and its effects throughout 2021. All of the major airlines are losing money and will continue to lose money in 2021 and possibly 2022. So you can forget about all the old measures of financial performance; liquidity or the ability to obtain it is the new crux of the matter. All the major carriers are going into debt at an accelerated rate in order to obtain liquidity. But their borrowing capacity is not unlimited and by early 2021 some companies will be at their wit’s end. This is when governments will have to look for new methods of intervention that are more appropriate to the new reality. We must now look for long-term preservation measures. Unfortunately, this implies permanent job cuts.

When the recovery takes hold, the airlines’ ability to bounce back will be limited: putting new or stored planes into service requires a lot of cash. In addition, staff must be trained in order to be able to operate the aircrafts. However, companies will have virtually no cash left, and there is no guarantee that people who have been unemployed for more than a year will still be available. So even if demand explodes in 2022, the industry will have a hard time keeping up.

On the manufacturer side, Airbus is the one doing the best at the moment. As for Boeing, I haven’t changed my mind; the MAX is a program that is no longer viable. So Boeing is in big trouble. ATR, De Havilland and Embraer face a gigantic wall; order books are low and regional air carriers are arguably the ones who will suffer the most. The airlines will fight for their survival and they will leave nothing to the regional carriers. As for Mitsubishi, nothing good to say there as the Spacejet program goes to mothballs.

Finally, business aviation seems to be doing much better at the moment. In several parts of the world including the US, flights are at 85% of what they were in 2019. In fact, only intercontinental flights are lagging behind. The market for used business jets has been very active lately and the inventory of good jets is running out. When the market runs out of used airplanes, buyers will have to turn to new ones. So I expect orders to pick up again in the first half of 2021. But we will have to wait until the start of 2022 before we see any increases in delivery rates.

 

André Allard
October 29th 2020