AINsight: Navigating Through Covid's 'Economic Shockwaves'

 - May 22, 2020, 9:30 AM

Anyone looking for validation on whether the Covid-19 pandemic is having far-reaching impacts on the aerospace and aviation industry needs to look no further than a couple of reports that emerged recently.

Lockheed Martin, the lead contractor on the F-35 fighter jet program, highlighted supply chain issues and delays when updating its 2020 delivery guidance, which is now expected to be about 18 to 24 aircraft (or about 13 to 17 percent) lower than planned. At London Heathrow and Frankfurt Airports, two of the world’s largest hubs for international commercial air passenger and freight, passenger enplanements in May 2020 were down a spectacular 97 percent year-over-year.

While these breathtaking events might seem disconnected from the day-to-day realities of business aviation, each is illuminating in their own way.

If ever there was a strategically important aerospace contract to the U.S. government, Lockheed Martin’s F-35 is surely it. With about 1,800 domestic suppliers across the U.S. and another 100 or so additional suppliers around the globe, the F-35 program is truly international in nature, with the U.S. and eight international country partners contributing capital.

To have this program be delayed in any way despite its designation as an “essential business” and “critical infrastructure” is a shiny example of well-intended policy bumping up against stark reality.

With Boeing and its circa 12,000 U.S. suppliers adjusting to the new realities of sharply lower commercial aircraft production rates, and a near-total, albeit temporary, collapse in new order demand from airlines and the lessor community, times have certainly changed. In the suddenly upside-down world we live in, the legitimate challenges faced by one or another segment of our economies—think, for example, the business aircraft OEMs, their supply chains, and the B&GA aircraft owner/operator community—can appear almost quaint and inconsequential in comparison.

Border closures and quarantining procedures have effectively shut down most international air transport save for the occasional repatriation or essential medical flight and other travel that is usually considered to be on the fringes of what airlines do every day. While governments worldwide have been stepping up to blunt the harshest impacts that Covid-19 is having on the airlines and other key sectors of our economies, the fact is that not even the best-intentioned policy can be an effective counterweight when end-user demand has dried up for the foreseeable future.

There is a groundswell of pressure to return our societies, economies, and ways of life to normal—to the ways things were before Covid-19. This is understandable and something that is ingrained in our nature—we simply long to get back to business and the ways of life we had come to know. The problem about the future has always been that we need to get there first.

In the eye of any storm, the welcome lull can convince us that things have improved and the danger has passed, which absent a medical solution is not yet the case.

While some key business aviation aircraft suppliers like the aero-engine manufacturers have been making the difficult longer-term decisions to adjust their production rate and cost bases to the new realities, most of aircraft manufacturing—part of the supply side of the industry—has been managing through a transition period of production furloughs and work-from-home arrangements. The key question is whether these arrangements will be sufficient to manage through a period when new aircraft orders—a key component of the demand side of the industry—have faltered as most prospective customers are temporarily unable or unwilling to meet face-to-face with their aircraft sales professionals.

With the Northern summer just weeks away, demand for charter and fractional flights should strengthen, as families put in place plans to relocate to their preferred vacation homes, where they hope to find their internet service worthy of its “high speed” description.

Meanwhile, back on Main Street USA, unemployment is already at historically high levels, fueled by the staggering reality of almost 39 million Americans filing for unemployment since the week ending March 21. In the week ending May 16, initial claims were up by more than 11 times year-over-year, a head-shaking amount but far improved over the past few weeks. As recently as the end of March, weekly claims were more than 32 times higher than the same week in 2019—a clarion call for massive government intervention and coordinated policy to help the millions who are suddenly out of work.

Sadly, these unprecedented economic shockwaves are pummeling shores far and wide and in all regions of the world. For business aviation leaders, the worldwide pandemic has temporarily slowed most national economies and business sectors, some of which provided sales opportunities to help weather past downturns.

Encouragingly, several business and general aviation fleet operators were among the eligible businesses thankful to be included amongst organizations receiving payroll support from the U.S. CARES Act. This is a sea change from earlier economic recessions, and a sign that industry advocacy efforts are generating solid returns on investment. For the good people at NBAA, EBAA, GAMA, NATA, and other industry associations, successes like these are some welcome news indeed.