covid-19 impact on aerospace industry...$7.5b $10.1b $5.4b $2.4b $1.4b $1.6b departure region...

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


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


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


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]


-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


Airlines 1

Passenger numbers [m] Scenario A (“V-shape”) Scenario B (“U-shape”) Scenario C (“L-shape”)


-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]


Airlines 1

Scenario B (U-shape) of loss of airline revenues 2020 from international and domestic passenger operations vs. originally planned baseline [$b]

-$27b


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


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


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


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


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


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


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


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

This presentation has been solely prepared for the client in accordance with the underlying contractual agreement. The presentation is to be treated confidential. Any disclosure to third parties - in whole or in part – is subject to our prior written consent, except to the extent such disclosure by the client is required by law. Unless otherwise expressly agreed in writing, no person other than the client is entitled to place reliance on the presentation or to derive any rights from the presentation. The presentation has been prepared on the basis of the information provided by the client, unless otherwise agreed with the client we have not verified such information as to its accuracy and completeness.

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covid-19 impact on aerospace industry...$7.5b $10.1b $5.4b $2.4b $1.4b $1.6b departure region...

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