Pandemics like COVID-19 are thankfully rare; however, the impact on the aerospace industry is large, especially for small-to-midsize suppliers.
The current COVID-19 crisis hits an already challenged supplier landscape that - especially in the North American market - is stressed by the Boeing 737 Max situation. The effect is a reduction in demand, supply interruptions, financial pressure and workforce impairment resulting in one of the largest global shocks in the industry’s history.
With the crisis in full swing and countries in shut down mode, the economic rebound scenarios are uncertain. A quick recovery becomes unlikely by the day. The shock of COVID-19 is impacting global GDP and presents a significant challenge to aerospace OEM and suppliers’ revenue, EBIT and cashflow.
For the aerospace industry the crisis results in:
- An extremely hard hit for airlines with passenger traffic slumped due to global and regional air travel restrictions.
- Airlines cancelling orders for new aircraft and OEMs Airbus and Boeing reducing production forecasts up to 50%.
- MRO business reduced significantly, and (besides regularly scheduled maintenance) work is at a minimum.
- Challenges to re-start and ramp-up if supply chain comes to a complete stop.
- Suppliers with weak financials running out of funding, losing key personal and possibility of not being able to recover.
- A higher demand in freighters due to lack of transport capacity in Pax AC (Passenger Aircraft).
- Pax AC demand could benefit from early retirements during crisis; however, low oil price is a threat to replacements.
- Opportunity that the downturn may increase airlines demand for FSA (Future single aisle) or NMA (New mid market) and away from Wide Body.
- We expect passenger growth to recover to pre COVID-19 levels, similar to the 9-11 crisis, after which only a few could imagine that passenger growth would return to old strength.
- It is yet to be seen how governments will respond and if so, what financial stimulus will become available in order to safeguard system-relevant players.
Many suppliers are struggling to adapt to the above changes resulting in the need for recovery via external support.