The airline industry has seen a sharp fall in fortunes due to the Coronavirus pandemic. The International Air Transport Association (IATA) said the sector could lose a quarter of a trillion dollars in revenues this year.
According to a recent report from Reuters, maintenance firms and spare parts manufacturers for airlines are looking at a 75 percent decrease in sales this year as most airlines have either shut down or are cutting the number of airplanes in operation. The 75 percent sales dip that translates to a $60 billion loss has been put forth by analyst Richard Aboulafia at aerospace consultancy Teal Group.
"We foresee reduction in maintenance, repair and overhaul demand of 60% or more for commercial aero engines (in 2020). And production will fall 40-50%," said Kevin Michaels, managing director at aerospace consulting firm AeroDynamic Advisory.
The industry will see a further decline in revenue as most airlines discontinue or park their airplanes due to lesser flight schedules.
The major players set to lose business are engine makers General Electric Co and Rolls Royce Holdings Plc, Collins Aerospace, AAR, Lufthansa Technik, AIR FRANCE-KLM Engineering & Maintenance.to systems companies like Honeywell International Inc, Raytheon Technologies Corp, Robert Bosch, IBM, Rockwell Automations and a host of smaller suppliers.
Maintenance costs for airlines vary depending on the aircraft class and type i.e., a light jet vs. a medium vs. a long-range. But on average, maintenance costs can range from 10 to 45 percent of the total yearly operating expenses. On average, jetliners cost $3 million a year to service and make up a significant portion of revenue for most of these firms.
"We will have an overhang of thousands and thousands of aircraft more than we require for years. To balance that out, you are going to have to retire thousands of aircraft," said Michaels of Aerodynamics Advisory.
The declining growth will see fewer new jets brought into service and lower demand for spare parts.
The vibrant, healthy industry will lose several years of growth and it could take until 2022 or 2023 before the volume of fliers returns to the levels before the pandemic, according to research firm OAG.
A report in 2016 said that an expanding global fleet is expected to push spending to $3 trillion by 2035. This number may take a hit due to the worst year in revenues and sales experienced by the industry.
The International Air Transport Association says that the airline industry will lose $84 billion in 2020, with revenue down by half to $419 billion.
Olivier Ponti, the vice president of ForwardKeys, said to Reuters that the airline industry will not emerge robust in the aftermath of the pandemic, and the air travel markets are sure to take a hit.
"It’s also possible that a number of airlines will have gone bust and uneconomic discounts will be necessary to attract demand back," he said in a statement.
With air travel stalled for the moment, half of the world’s fleet is in storage. Some 18,000 planes, or around 65% of the global fleet, were grounded throughout April and May. Added to that, industry insiders say the big-bodied jetliners such as the Boeing Co 777 or 787 and Airbus SE A350 or A330, will see deferrals and no buyers in the near future.
Reuters report says that reduced demand will see 20,000 active planes in 2021 as compared to 27,000 in 2019. Also, the airlines will be retiring between 1,500 and 2,600 aircraft in the coming months. This is three times the average one year number.
Most airlines are seeking government help to tide over the bad times. The US government has announced a $50 billion package for the airline industry. The support from governments could come in the form of loans with waivers and through corporate bonds.
"Governments need to ensure that airlines have sufficient cash flow to tide them over this period," said Conrad Clifford, Asia-Pacific vice president at the IATA.