May 18, 2020, © Leeham News: There simply is no good news in commercial aviation right now.
Yes, airport traffic is upticking in the USA (and elsewhere) slightly. But in the USA, it’s still less than 10% of last year’s totals.
There remains a tremendous amount of uncertainty.
The list goes on and on and on.
A mere two weeks ago, I wrote that a fundamental shift in the aviation industry will be ugly. It’s clear this doesn’t begin to describe things.
The US federal payroll aid for airlines expires Sept. 30 unless a new assistance package is adopted. Airlines and airline trade groups already say their will be huge layoffs beginning Oct. 1.
All thought of a new airplane program from Boeing is on indefinite hold. Airbus cut R&D funding on all airplanes except the A321XLR. Embraer ash-canned its prospective turboprop. Mitsubishi Heavy Industries suspended development of the M100 SpaceJet indefinitely.
Things are so fluid that’s what’s true on Friday as this is written may not be true on Monday when it’s published. It may not even be true within a day, or sometimes, within hours.
At this point, looking ahead toward recovery in the airline and aerospace industries is at best a matter of speculation. None of the companies seems anywhere near hitting bottom yet.
But deep within all the companies there should be a team considering how best to make opportunities out of chaos.
For example, Delta Air Lines was clear early that it will shrink its operations. The new size is unclear, perhaps even to insiders. But CEO Ed Bastien said in a television interview that plans were also being made to capitalize on growing at the expense of the competition (read: American, United and maybe even Southwest airlines).
Alaska Airlines was engaged in a multi-year market share battle in Seattle with Delta. Alaska, too, will shrink. But while Delta has bigger fish to fry, Alaska should plan how to consolidate its position even greater in its home hub.
United hasn’t announced firm aircraft retirements. While many speculate its Boeing 757s and 767s will never return to service, CEO Scott Kirby is a shrewd, opportunistic leader.
Southwest didn’t shrink as much as other airlines after 9/11, nor, so far, now. Southwest took advantage of competitor weaknesses after 9/11. CEO Gary Kelly is in the position to do the same now—especially against a weakened American.
JetBlue, Frontier and Spirit all have opportunities to make gains, if their balance sheets are too decimated.
Airbus CEO Guillaume Faury said repeatedly that survival is at stake. Airbus is “bleeding” cash, he said.
There is no way the governments will allow Airbus to fail. But this doesn’t mean the next few years won’t be incredibly painful.
Oddly, one can argue that Boeing is in a better position than Airbus. Why? Boeing has strong defense revenues coming in. Airbus’ defense unit is much smaller. This OEM is more dependent upon commercial revenues than Boeing.
This is not to say Boeing has a cakewalk. The 737 MAX is still grounded and, in LNA’s view, the 777X program has a dubious future. Boeing may need to go back to the financing well.
On balance, Airbus has the better product line up. The 737-8 and A320neo are evenly matched. The 737-7 and A319neo are about evenly the runts of their litters. The A321neo kicks ass against the 737-9 and 737-10.
The 787 has a broader, more attractive family than the A330neo. The A350 is more attractive than the 777X.
LNA expects Airbus and Boeing to survive.
So will Embraer, but it has product challenges LNA previously described.
Mitsubishi’s foray into regional airliner design is now in limbo. The parent company suspended all work on the M100 SpaceJet indefinitely and is reassessing the market. Slowing the progress makes sense, under the circumstances. Suspending it does not.
This crisis gives Mitsubishi breathing room to design the M100, enter and complete flight testing and obtain certification just in time for the industry recovery. The consensus is 2023-24. Mitsubishi should be moving forward, not stopping.
Over the next few months, LNA will take a deep look at OEM future strategies. These will be paywall articles, however.
However, as noted above: what’s true today might change tomorrow. Or even next hour.