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COVID-19 Impact on Aerospace IndustryImplications on Airlines, Airportsand Other Market PlayersDeloitte Point of View
Deloitte Consulting – June 2020
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 2
Entire aviation value chain is affected by the COVID-19 crisis – markets expecting massive revenue hits for airlines, aircraft manufacturer and airports
Deloitte Point of View on COVID-19 Impact on A&D Industry
Financial MarketsFinancial markets are similarly sufferingfrom sharp drops by up to ~55% and more (e.g. for Aircraft manufacturers, Kerosene) compared to January 2020 levels
Market DisruptionMore than 50% of global commercial jet fleet is still not in operation, potential risk of disruptions by higher proportion of second-hand aircrafts on the global market
AirlinesRevenue hit of ~$300 - 400b expected for passenger operations of airlines in full year 2020, ~60% of which in Europe and APAC while avg. market cap dropped by 45%
AirportsAirports likely to be affected by ~$100b globally in 2020, bearing superposition of risks for entire industry network, Europe and APAC mostly impacted by ~$67b
2
4
3
1
COVID-19 IMPACT ON MARKET LANDSCAPE
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 3
In April 2020, international passenger capacity has dropped by ~91% vs. plan
Impact of COVID-19 on Airlines and Passenger Capacities
250 305 10 1575%
20
80%
95%
90%
85%
FR
Monthly international passenger capacity reduction1) [%]
US
TR
JP
CN
UAE
MEX
UK
DE
KR
ESIT
HK
TH
NL
SG
CA
IN
CH
RU
TW
BR
EGY
1) Reduction in comparison to originally planned capacity in April 2020, referring to country of departure | Source: ICAO 2020 (8 June 2020), Deloitte analysis
= 10 million
Monthly international passenger capacity as originally planned [m]
Diameter equals capacity reduction
Ø 90.5%
Airlines 1
Asia / Pacific Europe North America Middle East Latin America Africa
Effects from COVID-19 crisis in April 2020 by country
Europe and Asia/Pacific
as most affected regions
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 4
Middle East
Africa
Latin America
AfricaEurope Asia Pacific
Asia Pacific
Europe
North America Latin America
North America
MiddleEast
$1.1b
$0.6b
$0.4b
$0.6b
$0.0b
$0.0b $0.3b
$0.2b
$0.8b
$0.1b
$1.3b
$0.4b
$0.6b $0.3b
$6.5b
$1.3b
$0.4b $1.1b $1.6b
$5.8b $0.1b
$2.7b$1.7b
Label
$0.5b
Revenues for international routes dropped by ~$28b globally in May, with Europe and Asia Pacific mainly affected departure/ arrival regions
Impact of COVID-19 on Airlines’ Gross Revenue by Route
$0.3b
$1.2b
$2.1b
$3.9b
$7.1b
$13.8b
$1.4b$10.1b $1.6b$7.5b $5.4b $2.4bDepartureregion
Source: ICAO 2020 (8 June 2020), IATA, Deloitte analysis
Area equals $1.0b
Arrival region
$28.4b
Airlines 1
Gross revenue drop by international routes in May compared to original planning [$b]
>70% of revenue impact can be attributed to the cancellation of intercontinental flights from Europe and Asia-Pacific
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 5
Market cap for airlines have sharply dropped on average by over 45% vs. 52 wk high – accounting to almost $70b of loss in market capitalization for considered sample
Impact of COVID-19 on Market Capitalization by Airlines
4.3
6.4
18%
Volaris
91%
46%
EasyJet
50%
Air France
12%
3.8
2.6
Turkish Airlines
53%
Norwegian Air
2.7
34%
21.8
Delta Air Lines
0.1
54%
4.313.0
United AirlinesLufthansa
47%
40.5
7.8
American AirlinesIndigo
43%
3.8
0.6
Qantas Airways
Jetblue Airways
5.4
59%
5.0
1.6
21%
Spirit Airlines
0.1
34%26%
2.71.5
34%
Air Arabia
5.8
VietJet Air
46%51%
WIZZ Air Hungary
82%
0.8
AirAsia Malaysia
3.4
Avianca
9.5 7.5 1.7 9.7 4.97.9 5.4 3.2 0.9 27.9 14.8 2.01.3
0.6
Asia / Pacific Europe Latin AmericaNorth America Middle East
Source: Deloitte analysis based on stock market data as of 9 June 2020
Airlines 1
Market cap comparison for selected Airlines (52 wk high vs. reduction and current level) [$b]
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 6
-10
-50
-20
-40
-30
0
F MJ MA J J DA S O N0
50
100
150
200
250
300
350
400
450
500
JJ MF M A AJ S O N D
-50
-20
-40
-30
0
-10
AJ F M M J J A S O DN-50
-40
-30
0
-20
-10
FJ M A M J NJ A S O D
∑ 1.8b
All Airlines together will potentially absorb a ~$300 - 400b revenue drop in 2020
Potential Recovery Scenarios from COVID-19 Crisis for Airlines
Estimate of international & domestic passenger numbers Jan – Dec 2020
Some aerospace sub-sectors, such as aircraft manufacturers and suppliers may face additional uncertainties with regards to potentially delayed and prolonged COVID-19 impact compared to airlines.
Loss of airline revenues 2020 from international and domestic passenger operations vs. originally planned baseline [$b]
∑ 4.8b
∑ 2.6b
-$302b -$379b -$400b
Focus on next page
Revenue loss [$b]
∑ 1.9b
Baseline
Scenario A
Scenario B
Scenario C
Source: ICAO 2020 (8 June 2020), IATA, Deloitte analysis
Airlines 1
Passenger numbers [m] Scenario A (“V-shape”) Scenario B (“U-shape”) Scenario C (“L-shape”)
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 7
-10
-5
0
OJJ MF M A J A S N D
0
-10
-5
SMAMJ F J J A O N D
-10
0
-30
-50
-40
-20
JJ JF M A M A S O N D
-20
-10
0
MJ AF A M J J S O N D-20
-10
0
A M SJ DOF M J J A N
Airlines serving international and domestic routes from Asia/ Pacific and Europe will face the largest drop of revenues –accounting for ~60% of global impact
Deep-dive into Scenario B: COVID-19 Recovery for Airlines
Latin America
-$379b -$123b -$88b
-$15b
Revenue loss [$b]
Africa
North AmericaAsia PacificGlobal Impact (Scenario B)
100% of global impact in Scenario B
33% of global impact 23% of global impact
7% of global impact 4% of global impact
0
-20
-10
F DJ M MA J J A S O N
-$103b
Europe
27% of global impact
-10
-5
0
DM AF MJ J J A S O N
-$23b
Middle East
6% of global impact
Revenue loss [$b]
Source: ICAO 2020 (8 June 2020), IATA, Deloitte analysis
Airlines 1
Scenario B (U-shape) of loss of airline revenues 2020 from international and domestic passenger operations vs. originally planned baseline [$b]
-$27b
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 8
0.45
42
2
1.05
10
1.300.40
16
40
0.50
6
0.55
18
0.90
184
14
1.200.60
38
0.65 0.70 0.75 0.80
36
0.85
8
1.100.95 1.00 1.15 1.25 1.35 1.400
12
4
Air France
AirAsia Malaysia
United Airlines
Jetblue Airways
Norwegian Air Shuttle
AIRASIA X MALAYSIA
Turkish Airlines
Indigo
Delta Air Lines
Avianca
WIZZ Air Hungary
Spirit Airlines
Lufthansa
Air ArabiaEasyJet
VietJet AirQatar Airways
Qantas Airways
Airlines show risk of short-term liquidity shortages – majority of which already requesting financial support from governments
Pressure Testing of Selected Airlines
Current Ratio (Current Assets / Current Liabilities)
1 Cash and cash equivalents based on latest available information as of 09 June 2020 | Source: CAPA Centre for Aviation, Company information, Investing.com, Press research, Deloitte analysis
Debt to equity
Diameter equals Cash1 / Revenue in days:
= 100 days
Asia / Pacific Europe North America Middle East Latin America
Underlined Airlines
already requested financial
assistance by governments
Airlines 1
Current financial situation of relevant customers according to order backlog
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 9
Global airports expect to suffer from a ~$100b revenue hit in 2020, majority of which expected in Europe and APAC, accounting for ~2/3 of total impact
Impact of COVID-19 on Airports by Geography
0
30
60
90
120
150
180
Europe
59%
North America
$172b
Latin America
53%
Middle East
51%
$50b
51%
Africa
57%
$97b
$13b
Total
COVID-19Impact
CurrentEstimate
47%
63%
Revenues 2020 [$b]
Asia / Pacific
$59b
$11b
$4b
$35b
• Recovery per airport depending on regional travel restrictions
• Higher risk of insolvency for smaller airports
Source: ICAO 2020 (8 June 2020), Deloitte analysis
COVID-19 Impact
~$67b
Airports 2
Estimated Impact on Airport Revenues 2020
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 10
London Heathrow
Paris Charles De Gaulle
Barcelona El Prat
Amsterdam Schiphol
Istanbul Atatürk
Madrid Barajas
Frankfurt Main
Moskow Sheremetyevo
Munich
London Gatwick
80.9
76.2
71.7
70.6
52.7
61.7
52.5
49.9
47.9
46.6
All major airports in Europe are suffering from YoY passenger declines, partially above 95% – some airports already initiated cost reduction measures
Impact of COVID-19 on Airports | Deep Dive Europe
Source: Statista, Deloitte analysis
Heathrow (SP) Limited | London Airport
• Q1/2020 Revenue: declined by 12.7%• Liquidity of ~$4b to maintain business• Immediate actions taken to reduce costs by around 30% - cutting
management pay, consolidation of operations, renegotiation of contracts
Fraport AG | Frankfurt Airport
• Q1/2020 revenues declined by 12.6%
• Liquid assets and committed credit lines of $2.7b
• YoY passenger count declined by 97% in April and 96% in May 2020,
increasing to 92.4% in the first week of June 2020
• YoY flight movements were down by 85% in April and 83% in May 2020
• YoY Cargo volumes contracted by 21% in April and 14% in May 2020
• Reduction of personnel costs by ca. 40% due to short-time work
Aena | Madrid Barajas, Barcelona El Prat Airports
• Q1 2020 Revenues declined by 13.4% compared to Q1/2019
• As of 29 April 2020, credit facilities amount to €2.4b plus possibility of
issuing debt up to €0.9b
• YoY passenger count declined in April 2020 by >95%
Q1/2020Revenues
significantly declined
April 2020
Passengers declined
>95%
Largest European Airports by handled passengers in 2019 [m]
Airports 2
B
A
C
B
A
C
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 11
Current crisis has already spread beyond airlines towards aircraft manufacturers and other industry sectors
Impact of COVID-19 on Financial Markets
AIRBUS and Boeing are equally highly impacted by the slump in demand for air travel – situation still remaining uncertain and volatile
20
30
40
50
60
70
80
90
100
110
J MF MA J
20
30
40
50
60
70
80
90
100
110
MJ F A M J
Average mix of aircraft, aero & defense system manufacturers and suppliers, less affected so far
-21%
Aircraft manufacturers
Airbus: -43%
Boeing: -36%
MSCI World Aero & Defense NYSE Global Airline Index U.S. Gulf Coast Kerosene
Airlines are globally impacted due to travel restrictions, light signs of recovery visible
20
30
40
50
60
70
80
90
100
110
J F M A M J
-33%
Kerosene prices crashed during Q1/Q2 due to demand/supply imbalances
20
30
40
50
60
70
80
90
100
110
AJ MF M J
-56%
Airbus
Boeing
Note: All figures indexed at 100 on 2 January 2020; figures based on closing price 9 June 2020 (US Gulf Coast Kerosene based on closing price 1 June 2020 due to data availability) | Source: Onvista, U.S. Energy Information Administration (eia), Deloitte analysis
Financial Markets 3
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 12
In-service ⁓23.5k
14.8k
⁓2.5k
CW22
⁓9.4k
CW12 CW20
⁓22.7k
CW52
⁓3.3k
⁓7.5k
⁓18.5k
CW13
⁓13.1k
⁓12.9k
~9.2k
CW14
⁓10.3k
⁓15.7k
CW15 CW17
⁓16.6k
CW16
~16.8k(65%)
~16.5k
9.5k
CW18
~15.9k
10.4k10.1k 11.2k
CW19
15.6k
CW24
14.3k
11.7k
CW23
13.5k(52%)
12.5k
In-storage
Despite slow ramp-up in Asia, still >50% of global fleet is currently not in operation
Market Disruption | Global Fleet Utilization
“Even leasing firms, which have plenty of capital and could repurchase planes from straitened airlines and then lease them back,
could be hurt if widespread insolvencies flood the market with second-hand aircraft, depressing leasing rates (…)” The Economist, 15.03.2020
• Demand shift towards smaller aircrafts with almost total collapse for A380, Boeing 747
• Risk of early withdrawal of older, less efficient units
• Potential insolvencies could cause flooding of second-hand aircrafts onto market
• Negative spillover effects on lease rate factors and residual values likely
• Risk of increased ‘white-tails’ production
1) Including wide-bodies, narrow-bodies and regional jets | Source: Cirium Utilization Data as of 9 June 2020, Deloitte analysis
20202019
Market Disruption 4
Global commercial jet aircraft fleet utilization1) [units] Threats for business disruptions
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 13
In the upcoming years, companies may need to undergo the full recovery cycle along the three phases of: 1. Respond, 2. Recover and 3. Thrive
Holistic View on Recovery Approach
Holistic Approach for Recovery from Disruption Scenarios
1. Respond: “Save to turnaround”
2. Recover: “Save to fund”
3. Thrive: “Save to grow and transform”
• Stronger focus switch towards Cost
Structure, still keeping Liquidity as key lever
• Phase to learn and emerge stronger with
investments
• Phase to set the foundation for sustained
growth and performance
• Clear switch of the focus towards Growth
and Technology as major transformation
levers, however keeping the levers Cost and
Liquidity as additional levers
• Phase oriented to prepare for downturn and ensure/manage business continuity
• Focus on Liquidity as absolute priority, supported by Market Intelligence, Operating Model Adaptation and Cost Structure as major transformation levers
• Airlines, airports and other market players are currently focusing strongly on (short-term) workforce adaptations(e.g., “Kurzarbeit” in Germany)
Market
Intelligence
1
Liquidity
2
Cost
Structure
4
Workforce
Adaptation
5
Operating Model
Adaptation
3
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 14
Market Landscape – focus on airlines, airport, financial markets and disruptions
• COVID-19 has wiped out demand for air travel, while the impact has spread beyond airlines towards entire industry
• In April 2020, international passenger capacity has dropped by ~91% vs. original plan
• Revenues from international routes from/to Europe and APAC mainly effected, global impact of ~$28b in May 2020
• Market capitalization of selected sample airlines sharply dropped by 45%+ vs. 52 wk high
• Revenue hit of ~$300 - 400b (or higher) expected for airlines in full year 2020, ~60% of impact in Europe and APAC
• Many airlines already requested for financial support by governments to secure and ensure liquidity
• Crisis period/shape is uncertain with potential monthly revenue losses of ~$10-45b for airlines in H2/2020
• Airports affected by ~$100b globally in 2020, bearing superposition of risks for industry network, esp. in Europe/APAC
• European airports suffer from YoY passenger declines of up to 95%+, some already initiated cost reduction measures
• Financial markets are similarly suffering from sharp drops by up to ~55% and more compared to Jan. 2020 levels
• 50%+ of global commercial jet fleet is still not in operation, risk of disruptions by second-hand aircraft
Implications for Affected Market Players
• All ‘external implications’ together cause the necessity for short-term and even radical adaptations of operating models
• Companies will have to undergo three fundamental transformation phases: 1. Respond (Save-to-turnaround), 2. Recover (Save-to-fund), and 3.Thrive (Save-to-grow and Save-to-transform).
The entire aerospace industry is massively impacted by COVID-19 crisis – requiring a similarly strong, short-term and disruptive response
Executive Summary
Deloitte Point of View: COVID-19 impact on Aerospace industryDeloitte 2020 15
Looking forward to hearing from you!
Is your business prepared for the time after COVID-19?
Thomas M. Doebler Deloitte Consulting GmbH
Partner Rosenheimer Platz 4
Strategy & Operations 81669 München
Sector Leader Energy, Germany
Resources & Industrials
Phone: +49 89 2903 67920
Mobile: +49 173 5498934
[email protected] www.deloitte.com/de
Dr. Ümit Aydin Deloitte Consulting GmbH
Partner Schwannstraße 6
Strategy & Operations 40476 Düsseldorf
Transformation Germany
Phone: +49 211 8772 5261
Mobile: +49 151 58077317
[email protected] www.deloitte.com/de
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