The Impact of Asian airline difficulties on OEMs

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By Vincent Valery


Feb. 24, 2020, © Leeham News: Passenger traffic in the Asia-Pacific region has grown dramatically since the turn of the century. Except for temporary dips caused by SARS in 2003 and the global financial crisis in 2008-09, passenger growth has stayed comfortably above 5% each year.

China emerged as the second-largest commercial aviation market behind the US. Domestic traffic in mainland China grew fivefold, and international traffic doubled since 2003. Numerous low-cost carriers become powerhouses during that period.

Along with this growth came major aircraft orders. Five out of the 10 largest A320neo family orders are from airlines in the Asia-Pacific region.

However, airline profitability in the region recently lagged that of those in the US and Europe. Even before the COVID-19 (coronavirus) outbreak, numerous carriers had financial difficulties. The outbreak will accelerate the reckoning for some airlines.

According to an IATA report, the COVID-19 outbreak could translate into a $29.3bn revenue loss for airlines in 2019. Instead of a predicted 4.8% YoY passenger traffic growth for the Asia-Pacific region in 2020, traffic could contract by 8.2%.

In the first of a two-part analysis, LNA assesses the vulnerability of various airlines and the resulting potential impact on OEMs.

  • Numerous airlines have significant capacity exposure to China;
  • Several Asian airlines already had fragile balance sheets;
  • Chinese airlines are under particularly acute cash pressure;
  • Airbus and Boeing have material production exposure to affected airlines.

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