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COVID-19 and the aviation industry

Antonio Gómez-Guillamón / Vicente Padilla

Antonio Gómez-Guillamón / Vicente Padilla

CEO & founders / AERTEC Solutions

At the start of the year, no one could have predicted a pandemic like the one we are currently experiencing. In fact, there has been no comparable event in terms of global impact on the economy, society and (especially) health since the last world war. And the aviation industry has been no exception.

Much of the last half century’s economic development has been associated with air transport. Globalisation, initially driven by information technology, has been brilliantly supported by an industry that has facilitated the movement of people and goods on an unprecedented scale. Many sectors have grown or become more competitive as a result of the development of aviation.

Much of the progress that has been made in 21st century society has been driven by advances in air transport, one of the sectors most affected by the coronavirus pandemic.

Paradoxically, this increased movement of people has been a major contributing factor to the current COVID19 crisis. One of the characteristics of this coronavirus is its extremely high contagiousness, which makes our current society an optimal breeding ground. From now on, we know that the threat will always be present and we will have to learn to foresee it. This is the first lesson learned.

Containment seems to be the best prevention, as demonstrated by the first countries hit by the pandemic: China and South Korea. If we focus on the aviation sector, the fact that air transport is reduced or even halted entirely means that the entire industry will very soon be affected.

According to the International Air Transport Association (IATA), at the beginning of 2020 the airline industry was maintaining a long-term annual growth rate of 5.5%. In the current situation, where governments are drastically reducing travel and airlines are cancelling flights and grounding their fleet, revenue from passengers is being reduced to zero. This will result in a loss of operating cash flow over the next few months of tens of millions of euros, in addition to the cost of customer refunds. Some airline operators around the world have already requested state support due to the sudden plunge in passenger traffic.

The next consequence in the chain of events is that many airlines will not be able to maintain their aircraft leases, directly affecting aircraft leasing companies, which currently account for more than a third of all operational aircraft. Similarly, operators who have orders for aircraft currently in progress will be quick to negotiate with manufacturers to arrange a cancellation or, at best, an indefinite delay in delivery.

In the airport sector, we are already seeing empty terminals. Most international flights scheduled for the next few days anywhere in the world are devoted to the repatriation of residents who have been caught off guard by the health crisis while far from home. Domestic flights have been reduced to a bare minimum due to the restrictions on movement imposed in dozens of countries. For airports, this means not only minimising their activity in the immediate term, but also closing their commercial areas, halting the activity of airport service companies and reducing their operating income practically to zero.

Another step in the chain of consequences is the additional business network that surrounds airports, which is inevitably experiencing the same trend.

As regards the aircraft manufacturing industry and its supply chain, there are three major factors at play at this point. Firstly, in the very short term, there’s the necessary adoption of preventive measures in the factories themselves, to avoid the spread of the coronavirus. Secondly, the lack of supply of certain components that are essential for ensuring the continuation of the assembly line. This will lead to an immediate drop in productivity. And thirdly, in the medium and long term, the airline crisis, which will lead to a decrease in and even cancellation of orders for new aircraft.

As in the case of airports, the entire business network associated with aeronautical manufacturing will be similarly affected.

At the same time, this same industry is becoming an essential focal point in the fight against COVID-19. Aircraft are playing an essential role in the rapid dispatch of supplies, movement of medical teams and repatriation of citizens. Communication satellites allow communications and broadband to be maintained. Military aircraft allow immediate deployment and support of military emergency units. In short, there are many areas in which aeronautics is playing a key role.

Never before has the aviation industry faced a situation like this one, and there is no place for half measures when it comes to tackling the true magnitude of the crisis.

The priority now should be to implement all measures that will help us limit the spread of the pandemic. How long the crisis lasts is of critical importance. The wound has already cut very deep, but it is the duration that will determine the extent of the damage. At the same time, it is our responsibility to maintain productivity as much as possible, which will necessarily involve modifying tasks, adapting procedures, incorporating new processes, and a detailed analysis of affected companies’ different areas.

The objective we must in all events prioritise is the implementation of measures that ensure the continuity of these companies. Firstly, because this will help reduce the tremendous social burden the state has to bear in these extreme circumstances. And secondly, because this is the only way we will be able to maintain an industrial structure that, once this period of fighting the virus has passed, will help create and maintain jobs, generate tax revenue and act as a driver of economic growth.

Once we have overcome this first challenge, the time will come to analyse the situation we will be facing next.

To begin with, society may well be somewhat traumatised after having lived through a period that is likely to feel almost warlike, for which it was neither prepared nor forewarned. Millions of jobs will be lost and tens of thousands of small businesses will not be able to resume their activities. Governments will have committed debt in the medium term intended to repair the damage caused by the pandemic, with funds already running low after the recent need to deal with the worst moments of the crisis. And, of course, the production environment will be badly damaged, and will have to restart little by little.

The ensuing period will not be easy; it will inevitably be tough, and many sacrifices will have to be made. Together we must learn from this event in order to rebuild our business networks, making them more robust and productive. I am convinced that this is possible.

Now is the time to think sensibly, responsibly and hard, in order to address our current situation and begin the necessary recovery. Above all, this is a time like no other for us all to be united. This may be a major lesson in what globalisation means, and we must learn from it in order to tackle the new challenges that await us as a planet.

 

COVID-19 and air transport

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