COVID-19: Who will rescue aviation sector?

Coronavirus (COVID-19) pandemic continues to impact the global aviation arena with its debilitating economic effects. The effects, among others, include flight suspensions, airports closure, grounding of aircraft/redundancies and huge loss of revenue to airlines, ground handling firms, JET-A1 suppliers and other service providers. With over 25 million jobs under threat globally, airlines and Original Equipment Manufacturers (OEM) are evolving a raft of measures, including pay/job cuts, to navigate around the unprecedented crisis, KELVIN OSA-OKUNBOR reports.

The survival of global air transportation is precariously hanging in the balance. No thanks to the devastating effects of COVID-19, which continues to claim thousands of lives across the globe.

Airlines across the world are in  dire straits with challenges ranging from liquidity crisis to job insecurity with over 25 million people directly and indirectly dependent on  aviation, including others in tourism and the hospitality sectors.

The International Air Transport Association (IATA) says the  industry is in the throes of an unprecedented crisis. It’s Director-General/CEO, Alexandre de Juniac, says airlines are facing the most critical period in the history of commercial aviation.

In the last few weeks, global aviation has witnessed distortions  occasioned by the continuous spread of COVID-19, manifesting in  travel ban, flight restrictions, closed airspace and airports, among strategies designed as containment measures rolled out by countries to arrest further spread of the virus.

According to experts, the aviation sector is worse hit by COVID-19 as the movement of passengers and commercial cargo has been halted because of travel restrictions imposed by many countries across the continents.

The effect is that airlines, airport authorities, ground handling companies, aviation fuel suppliers, airline caters/suppliers and others in the value chain  have been hard hit.

As a fallout, many airlines have initiated a string of measures to get over the effects of the pandemic on global air travel in the face of dwindling revenue.

Global job loss

As a consequence, international airlines have started reacting to the negative economic impact. Reports indicate that Virgin Atlantic has fired more than 3,000 workers, including 600 pilots. Finnair returned 12 planes and laid off 2,400. Ryanair also grounded 113 planes and got rid of 9,00 pilots with indications that over 450 would be sacked in the coming months, while Norwegian stopped its long-haul operations and the Boeing 787s it earlier leased have been returned to the lessors.

In the same vein, SAS returned 14 planes and fired 520 pilots.

Also, Etihad Airways has cancelled 18 orders for Airbus 350, grounded 10 Airbus 380 and 10 Boeing 787 in addition to laying off 720 staff members.

Emirates has grounded 38 Airbus 380. It has also cancelled all orders for the Boeing 777x , which is 150 aircraft, the largest order for this type. The airline said about 56 members of the workforce may retire. Also Wizzair returned 32 Airbus A320s and laid off 1,200 people, including 200 pilots with another wave of 430 layoffs, planned in the coming months with the remaining employees seeing their wages reduced by 30 per cent.

Eurowings has gone into bankruptcy and Brussels Airline has reduced its fleet by 50 per cent. German mega carrier, Lufthansa said it plans to ground 72 aircraft in two installments, while Hop is studying the possibility of reducing fleet and staff by 50 per cent.

Reports also indicated that there are 60 new aircraft stored at Airbus with no buyers in sight, including 18 Airbus 350.

Industry insiders project that there would be a minimum of 8,000 grounded planes by September. With an average of 5.8 crews per plane, medium and long haul combined would result in more than 90,000 pilots unemployed.

Elsewhere, Qantas has put 20,000 staff on leave, while Air Canada has done the same for about 15,200 employees. Norwegian Air said it could run out of cash by mid-May. At American Airlines, about 4,800 pilots have agreed to take short-term leave on reduced pay and more than 700 are taking early retirement.

British Airways to axe 12,000

British Airways on its part is set to cut up to 12,000 jobs from its 42,000-strong workforce due to a collapse in business because of the coronavirus pandemic.

The airline’s parent company, IAG, said it needed to impose a “restructuring and redundancy programme” until demand for air travel returns to 2019 levels. IAG also owns Spanish airline Iberia and Ireland’s Aer Lingus.

The company said it would take several years for air travel to return to pre-virus levels, a warning that has been echoed by airlines across the world.

BA Chief Executive Alex Cruz wrote in a letter to staff members: “In the last few weeks, the outlook for the aviation industry has worsened further and we must take action now. We are a strong, well-managed business that has faced, and overcome, many crises in our hundred-year history.”

About 4,500 pilots and 16,000 cabin crew work for BA.

Original Equipment Manufacturer too

The effect of the pandemic coursed through the travel industry forcing equipment manufacturers, including the Boeing Company, to axe jobs.

Boeing plans to cut 10 per cent of its workforce and reduce its plane production rates as it braces for years-long industry recovery from the aviation crisis induced by the coronavirus pandemic.

The aerospace company said that the staff reductions will include voluntary layoffs (VLO), natural turnover and involuntary cuts as necessary.

“We’ll have to make even deeper reductions in areas that are most exposed to the condition of our commercial customers – more than 15 per cent  across our commercial airplanes and services businesses, as well as our corporate functions,” Boeing President/Chief Executive Officer (CEO) Dave Calhoun said in a letter to employees. “The aviation industry will take years to return to the levels of traffic we saw just a few months ago.”

Calhoun added the demand for commercial airline travel has fallen off a cliff, with U.S. passenger volumes down more than 95 per cent compared to last year. Globally, commercial airline revenue is expected to drop by $314 billion this year, according to Boeing.

As a result, airlines are delaying purchases for new jets, putting the brakes on delivery schedules and deferring elective maintenance.

“We’re also seeing a dramatic impact on our commercial services business, as grounded airline fleets decrease the demand for our offerings,” said Calhoun.

“We will have to reduce commercial airplane production rates. The sharp reduction in demand for our products and services over the next several years simply won’t support the higher levels of output.”

The workforce and jet production reduction announcement comes as Boeing posted an adjusted first-quarter loss of $1.70 billion, or $1.70 per share, compared with a profit of $1.99 billion, or $3.16 per share, a year earlier.

The coronavirus pandemic has put pressure on Boeing’s cash flow. The company has taken steps to preserve liquidity by reducing operating costs and discretionary spending, suspending dividend payments and stock buybacks, and by cutting or deferring the research and development and capital expenditures. In addition, Boeing is exploring potential government funding options.

Nigerian experience

With Nigerian airports remaining closed for scheduled commercial flights, except Lagos and Abuja, where evacuation and essentials are permitted, huge aircraft maintenance costs have piled for over 125 airplanes parked at the air side. Some of the aircraft, experts say, would have attained their flight cycles for periodic and routine maintenance, which the carriers could ill-afford.

They say airlines are not the only losers, others which depend on the movement of aircraft from one location to the other, such as car hire operators, travel agencies, bureau de change operators, airport shops and restaurants, ground handling companies remain “infected ” in the value chain.

Not left out in the in economic “infection” are aeronautical and regulatory agencies – Federal Airports Authority of Nigeria (FAAN), Nigerian Airspace Management Agency (NAMA) and Nigerian Civil Aviation Authority (NCAA).

The agencies have lost billions in revenue.

Revenue tied to flights include landing and parking fees for aircraft, ground rent,  passenger service charge, ticket/cargo sales charge, terminal/en route navigational charges among others.

Besides government agencies/concessionaires who operate at airports have also been hard hit. Job losses loom in the sector.

Arik Air example

Flag carrier, Arik Air last week took  drastic measures as it announced 80 per cent cut in the salaries of  workers for last month.

Its Managing Director, Captain Roy Ilegbodun, made this in a message to workers.

The decision to cut salaries, the Arik Air chief said,  was a fall out of careful deliberation and analysis by the management  for last month.

Since last week  about 90 per cent of  its staff members have already  proceeded on leave without pay.

The Arik Air boss said:  “While we are not unaware of the challenges that each and every one of us may face during this difficult period, we join you in remaining hopeful that this ugly situation will abate in the shortest possible time and our organisation will come out stronger in the long run.

“We are confident that the steps we are taking now are in the best interest of all and will see us through this difficult epoch in the history of mankind.

“To date,  the situation created by the COVID-19 pandemic remains dire with a high level of uncertainty, even within medical circles regarding the containment of the pandemic.

“Our situation in Nigeria appears to be getting worse.With the trend of events, it is prudent to lean on the assumption that the situation is likely to persist for a while longer.

“Of huge significance to us is that we have suffered a sharp decline of over 98 per cent in our revenue streams since the suspension of our scheduled flights almost four weeks ago.

Lamentations from FAAN

The crisis triggered by COVID-19 is yet to abate. The Management of the Federal Airports Authority of Nigeria (FAAN) last week expressed worry over the dwindling revenue of the agency following the continued lockdown due to the  pandemic.

Company Secretary and Legal Adviser, FAAN, Dr. Clifford Omozeghian,  made this known at the Murtala Muhammed Airport, Ikeja.

He said the FAAN Management would liaise with the Federal Government to see how the issue of revenue generation would be addressed to meet up with airport infrastructure challenge.

He  said  only last month’s salary  of FAAN workers had been  paid in response to   the Federal Government’s directive.

He said: “Revenue for FAAN has dwindled drastically, management will liaise with the Federal Government to see how this issue of revenue generation would be taken care of because it may be difficult to pay salaries but I know that with federal government on our side, certain measures will be put in place.’’

Omozeghian said  the pandemic has already triggered a global economic recession, which has also affected FAAN with a dip in  its revenue generation.

He expressed optimism that the present situation would be  addressed so that FAAN would not have issues with the payment of salaries as well as how to  take care of very critical projects that are essential in the industry.


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