With its rapid global spread, massive death toll and subsequent lockdowns, Covid-19 has significantly impacted the demand for travel globally.
Impact if COVID-19 to date
The Covid-19 pandemic has had an abrupt and devastating effect on the aerospace sector globally.
Airbus advised that “according to IATA (International Air Transport Association), worldwide domestic flights have dropped by 70% and the loss of passenger revenue is reaching $314 billion. Europe’s largest airports have managed 90% fewer flights and the recession combined with a perceived COVID-19 infection risk when travelling, is damaging passenger confidence.” Airbus further noted that to date, approximately:
- 57,000 people have been furloughed
- 33,500 made redundant across airlines, airports, and aerospace businesses
What does this mean for the aerospace sector?
The demand for new aircraft has fallen and production rates have dropped by 30%, notes Airbus. Airbus is now fighting for survival and has announced plans to adapt its global workforce and resize its commercial aircraft activity. Without a doubt, suppliers into the aerospace sector are to further going to suffer a severe impact with large OE’s facing a significant hit on their order books.
Latest research suggests that there will be a 25-50% reduction in OE demand between 2020-28, depending on which scenario unfolds next.
What can aerospace suppliers do to survive the crisis?
Over the past few months, most suppliers have managed to:
- Secure liquidity
- Manage their workforce
- Undergo an effective production ramp-down
To remain afloat, companies continue managing the key operational basics such as:
- Keep an eye on cash flow
- Track demand signals
- Revise supply chain planning
- Support sub-tier suppliers
In addition, suppliers must now also re-think their strategy and ensure it is fit-for-purpose in the “new normal”.
For the industry to recover and heal, suppliers must ensure readiness to support their airline customers to ensure aircrafts can return to service quickly as and when demand returns.
Research suggests that another avenue that aerospace suppliers have started to explore is influencing local and central governments to incentivise faster aircraft retirements. This would partly mitigate the damage to the aerospace sector as OE demand eventually recovers more strongly. Also, his option uncovers greater environmental benefits as cleaner aircrafts will replace less efficient aircrafts faster.
Covid-19 is a shock for the aerospace supply chain, which presents major operational risks but also opportunities. Companies will have to re-evaluate their product portfolio, breadth of operational capabilities as well as their manufacturing footprint.
Scenario thinking will serve suppliers well as significant uncertainty remains in which scenario will unfold as we begin to recover from the Covid-19 crisis.
Goudsmit UK
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