Businesses in the aviation and aerospace sector operate in a fast-moving, dynamic and challenging global environment.
Please click for more information on the Aviation Supply Chain.
Flying into the eye of the storm
The last decade marked the most profitable period in the history of the global aviation sector. Strikingly, that standout performance was driven by around 14 of the larger airlines, which together generated a hefty 85% of the world’s airline profits during the decade. Yet this stellar financial success has been swiftly eclipsed by the impact of the Coronavirus (COVID-19) pandemic.
With the aviation sector now staring down the barrel of the deepest crisis it has ever faced, air travel around the world has slowed to a virtual standstill. While their planes sit empty on the tarmac, most airlines are either running at a loss or only generating marginal profits that keep their heads above water. What’s more, the difficulties facing the sector are not limited to the airlines alone: the financial fallout is being passed on right down the aviation supply chain to everyone from original equipment manufacturers (OEMs) and catering providers, to ground handlers and airport operators.
The next phase: from surviving to thriving
With the full impact of the crisis still unclear, the aviation sector is now emerging from the ‘survival capital’ phase – the initial dash for cash as customers vanished virtually overnight. The recovery phase will be driven by a fundamental, structural shift in the business landscape itself, with industry leaders facing the imperative to restructure and re-form their businesses to operate in a sector that looks starkly different from its pre-crisis state.
Setting a flight path for the future
When it comes to the future, there are two major uncertainties facing the aviation sector. The first is the impact of COVID-19 on people’s ability – and willingness – to travel by air, as a litany of shutdowns, quarantines and strict health and safety regulations make taking a flight more complex than ever before. The second uncertainty is the extent of the economic impact on the industry. Even before the pandemic struck, the first rumblings of the US-China trade war in 2019 had already begun to dampen demand for business travel. This trend is only likely to continue as workers shun air travel in favour of new, more flexible ways of working remotely, such as Zoom.
Pent-up demand for flights that built up as the pandemic set in has been kept at bay by regulations. Some of that demand will now be released as travel restrictions are relaxed and government sanction ‘air bridges’ connecting countries with lower infection rates, effectively creating ‘travel bubbles’ that eliminate the need for quarantine measures. Yet with capacity still constrained by the reduced number of routes in operation, passenger can expect to face higher ticket prices for some time to come.
Restoring customers’ confidence in the safety and security of air travel will require a coordinated international effort, and that starts with developing robust common protocols and implementing rock-solid bio-safety measures throughout the aviation value chain. If aviation industry leaders can successfully deliver on that strategy, this will provide the economic boost that is so desperately needed by a sector teetering on the brink.
How we can help
Our proactive approach to advising aviation and related businesses is designed to help them to achieve their objectives and overcome the challenges they may face along the way. Some of our previous clients have included European airlines, aerospace companies, aircraft lessors and travel companies.
Our specialist team operates across borders and has deep experience in corporate finance, due diligence, financial advisory, forensic accounting and investigations, and restructuring and insolvency.
Aviation webinar series: now available on demand
In conjunction with the Airline Management Group, we have been exploring the impact the pandemic has had on the sector. In a series of videos, one of our restructuring managing directors Paul Zalkin interviews Peter Davies (CEO), Ben Leon (Chief Commercial Officer) and Augusto Viansson Ponte (Director of Strategy and Planning) in a series of videos designed to provide new insight into the challenges it is facing and support those businesses navigating their way through it.
Series 1 - Has the sector been grounded?
Please click below to watch each episode of series one.
Series 2 - Coronavirus and the Aviation Sector: The Short and Long Game
Please click below to watch each episode of series two.
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