March, 2020 - Modern Airliners

There is no doubt that COVID19 is shaking up the world we live in today. The human tragedy that has taken place and has yet to take place cannot be overstated.

One of the biggest and most visible effects, is that of our ability to move around freely, specifically, air travel. To curb the spread of COVID19, and the importation of that virus, many countries moved quickly to restrict travel. Most particularly international arrivals. In the early stages, airlines reduced their services so as to avoid the well known infected areas and the risk of bringing back infected passengers to their home country. This has quickly escalated to total travel bans being put in place for most countries, leaving airlines with no business in those markets.

Naturally, no income means that costs have to be reduced very drastically and quickly to avoid bankruptcy. This has involved mass staff layoffs and of course the grounding of many aircraft. At first international routes were most affected as countries closed their borders to new arrivals. Domestic services continued to run, however, at a reduced frequency. According to the OAG (Overseas Airline Guide), a data centre for flight schedules, in the U.S. in the week to 24 March 2020 airline seat capacity dropped by 1.4 million seats or 6%. Some of the larger airlines are saying they are planning to further reduce domestic capacity by 30% and international by 75%.

While some low-cost carriers like Spirit are trying to stay afloat by offering fares as low as US$18 plus fees, the trend is growing to ground airliners that cannot fly their normal routes.

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… offering fares as low as US$18…

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So where do the airlines keep these grounded planes? As you can appreciate, a large modern airliner takes up a lot of space and also needs to have a solid base beneath its wheels. In a way, the problem being common to all operators helps. For example, at Tulsa International Airport they have been able to close seldom used taxiways and runways to accommodate 50 airliners owned by American Airlines. Normal operations are not affected.

Airliners stored at Don Mueang Airport in Bangkok.

This is obviously not the answer everywhere. There are many thousands of aircraft being grounded and there isn’t enough unused space at the world’s airports to accommodate them all. Throw into the mix the fact that there are the grounded Boeing 737 Max aircraft in various locations awaiting certification clearance to fly again, and you see there is a parking problem.

Where there is a problem, however, there is often someone benefiting from the solution they provide to that problem. One such business is ComAv, an aircraft maintenance and storage firm based at Southern California Logistics Airport in Victorville. Their Director Corporate Initiative, Lisa Skeels, said they are definitely very busy. They are currently storing 275 planes and can accommodate 200 more. ComAv is inundated with requests from various airlines for storage space although they would not reveal which airlines.

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ComAv is inundated with requests…….

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I’m sure we’ve all heard of the desert boneyard storage facilities for unused airliners, but there is a distinct difference between parking an aircraft in the desert and parking an aircraft and keeping it maintained. Like anything an aircraft left unattended will start to deteriorate and will eventually become unairworthy. Airlines have huge amounts of capital tied up in these aircraft and they need to know that when this global downturn ends, that their aircraft can come back into service with a minimum delay. This is not just like parking your car in the long term car park while you go on a trip. The aircraft, if it is to be stored for a long period of time, needs to be put into an “aircraft coma”. This typically means draining and replacing all fluids and sealing the cabin doors and engines.

Whilst parking a large Boeing 777 can cost around US$150 a day to store, the required maintenance can start from US$2,000 per month. Even though the jet is static, the manual calls for regular checks on such system as avionics, hydraulics, electronics and other operating systems. The trick is guessing how long this covid19 situation will last. There is a more intense idling maintenance schedule which involves aircraft actually being regularly started up. Basically, the more intense the maintenance schedule, the quicker the aircraft can return to service when things return to normal. The maintenance cost may be high, but the lost earnings may be much higher for an aircraft’s delayed return to service.

What we also no doubt might see is perhaps the earlier retirement of older aircraft like the McDonnell Douglas MD-88s, MD-90s and perhaps even some of the remaining Boeing 747s.

What tomorrow’s airline industry will look like is anyone’s guess right now.

If there is one thing there is an abundance of at the moment, it is ever-changing information about COVID19 and how it is affecting our lives. The situation merits all the superlatives being thrown at it at the moment and literally changes by the hour. So what has this got to do with Modern Airliners or any airliners for that matter?

You would have to have arrived from Mars to not know the extreme measures that are being taken by governments to try and reduce the effect of COVID19. Obviously, the priority is to reduce the number of people that are infected and thereby reduce the death toll from this pandemic. The second concern, and perhaps nearly as important as the first, is the economy. I hate saying that as it sounds like life isn’t worth very much. The economy, however, is what makes people’s lives what they are today. It provides jobs, it keeps people fed, clothed and under shelter. Ensuring this continues will prevent the loss of life through on flowing effects of the pandemic.

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… if I travel will I be able to get home again….

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We have seen border closures in many countries around the world in the last few days. Even if the borders aren’t closed, there are travel restrictions and simply the fear of, “if I travel will I be able to get home again?” In living memory for most people today, this is not a concept that they have ever experienced and it may take a few who ignore the warnings to get caught out before others see the seriousness of the issue.

Ok, what has this got to do with Modern Airliners?

I thought you’d never ask. All around the world airlines have felt the impact of the above border closures and travel restrictions. Most have severely trimmed back their services to try and stem back the money bleed. Flying empty aircraft is a very costly business and is to be avoided at all costs. Initially, Australian flag carrier QANTAS grounded 10 out of its 12 Airbus A380s as these aircraft require a high occupancy rate to break even, financially. This grounding has been quickly followed by many other of its aircraft for the same reason, as further route capacity reductions or cancellations take place. This is just one example of what is happening to carriers all over the world. The immediate result has been that many travellers who have been urged to and have chosen to, repatriate themselves are finding that they are part of a very large group that is being affected by the reduction of airline capacity.

So what of the airlines themselves? Airlines are a very important part of the world economy. They are the catalyst that enables world economies to work at all. For this reason, it is of paramount importance for a country to ensure their national or other carriers remain in business. I know here in Australia, the government has given an economic stimulus to the airlines to enable them to survive this major upheaval. Oil prices falling off a cliff earlier this month has not been enough to make up for the drop in customers for the airlines. Even though it is estimated this could save airlines in the order of B$28 (US) over 2020. We have to face the fact that we are going to see a mass extinction event of smaller airlines.

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… revenue losses for passenger transport would run at B$63 – B$113 (US)…

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Depending on how quickly the COVID19 pandemic can be contained, IATA estimates that revenue losses for passenger transport would run at B$63 – B$113 (US). Impact by market according to IATA looks something like this.

Region	Per cent Change	US Dollar Change
Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand, Vietnam.	-23%	-49.7 Billion
Rest of Asia Pacific.	-09%	-7.6 Billion
Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden, United Kingdom.	-24%	-37.3 Billion
Rest of Europe.	-09%	-6.6 Billion
Bahrain, Iraq, Iran, Kuwait, Lebanon, United Arab Emirates.	-23%	-4.9 Billion
Rest of Middle East.	-09%	-2.3 Billion
Canada and US	-10%	-21.1 Billion

It doesn’t make for good reading, does it?

So what will happen to the grounded aircraft? It is hard to know what to plan for. How long will the pandemic last, what will the world look like when it is all over? Will we need the same capacity as before? One thing we can be sure of is that things will eventually bounce back. They may be different in some ways, but the economy will pick up again as people come back from isolation. We may find, however, that the need for people to work from their home during the pandemic, will lead to more technology being thrown into the online world to make things possible that currently are not. People’s perception of travel may change. If you go back to 9/11, people became fearful of flying. Not to mention the added hassles of extra security whenever you did so. Cruising became a much more attractive alternative for holidaymakers, as there was a much lower likelihood of terrorist attacks, or at least so it was sold. I fear that many people are losing their appetite for being on a cruise ship after what has happened to several ships since COVID19. So maybe air travel will regain its popularity again.

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.. So maybe air travel will regain its popularity again.

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So, about those aircraft. Airlines like British Airways(BA) and Lufthansa(LH) have the biggest remaining fleets of Boeing 747s. If you discount the age of Luftahnasa’s Boeing 747-8s which are around 6 years old now, the average age of the BA and LH 747s is around 21 years. Will they consider retiring them early. An older aircraft becomes a lot more expensive to maintain and if there is no income being generated from this aircraft, its financial burden becomes too heavy.

So with all these aircraft grounded, what about new aircraft orders? That is the on flow effect that will hurt plane makers like Boeing and Airbus. There will be the airlines that disappear and their orders cancelled. Then there are airlines like Cathay Pacific, for example, that have approached Boeing and Airbus about delaying their orders.

Boeing for its part has approached the US government for a B$60 stimulus package. The aviation industry must survive and it is worth noting that Boeing estimates that 70% of its revenue flows on to its 17,000 suppliers. The aviation industry is a huge employer and its demise can not be allowed to happen. Similarly, Airbus and its many suppliers are in the same boat.

Apparently the story is not all doom and gloom. Dr. Steve Wright of the University of the West of England, Bristol(UWE Bristol) believes that the aviation industry will survive. Jobs will be lost, mainly at the customer-facing level, and of course those smaller airlines. Aviation seems to go through an 11 to 12-year cycle. Events such as 9-11 and the global recession of 2008 knocked the industry about, but it recovered. It will again. Meanwhile, Dr Wright says, development of new aircraft still goes on. In 5 ye4ars time, we will still see the fruits of technology research that is going on right now.

What happens to planes grounded by COVID19?

Coronavirus (COVID19) and Modern Airliners.