How Corona could change the future of Aviation

How perfect aviation was just weeks before: the new corona virus (SARS COV-2) seemed to be contained to be local chinese problem only, global growth seemed to be unaffected. If the virus could have a negative impact, then it would be just a very temporary dip like we saw when SARS (SARS COV-1) appeared in 2003. Then, growth rates quickly came back to what they have been before.

For now, we should not count that to happen again after worldwide infections with the virus have dropped significantly. The timing of this, of course, is the first open question: some state leaders seem to think they can beat the virus by ignoring it and tell their people they should not be cutie-pies just because they do not get enough ventilators…

But let us think what will happen after the crisis – whenever that may be:

A lot of airlines will cease operations indefinitely – not just temporarily as just right now. Even if many governments will throw a lot of money onto their national airlines, I think it is fair to assume that many will not survive in the long term, just because they lost too much money meanwhile.

But what is more important is what CEO’s of large and strong airlines say these days. CEO’s of airlines which should survive the crisis. Let’s take a look at Lufthansa, Delta Air Lines and United.

Lufthansa’s Carsten Spohr said these days that after the crisis his airlines group will not see the scale as it had before. Spohr is sure that after the corona crisis the whole aviation industry will be a different one: “We have a smaller Lufthansa group ahead of us.”

As for Delta, CFO Paul Jacobson already said: “We’re going to be smaller coming out of this” and Henry Harteveldt, president and founder of Atmosphere Research said he would not be surprised if that will be also true for United and American. In fact, also United CEO Oscar Munoz and president Scott Kirby warned in a letter to employees, that “our airline and our workforce will have to be smaller than it is today.”

If this will be true, and not just for these particular carriers but for the whole industry around the globe: what does it mean?

First: less airplanes in the sky. The question is then, relative to today, where airlines parked up to 95% of their fleet, which airplanes they will fly then. Will they put their older aircraft out of storage again or will they grow only modestly, getting only the younger aircraft out of storage and then grow slowly with deliveries of new aircraft? That depends on if they can pay for new aircraft and if the aircraft they own today are owned by themselves.

Airlines with better financials may take new aircraft and benefit from lower operating and maintenance costs. On the other hand, if they own their aircraft without any debt on them and oil prices are staying low, it could be more economical for some time to put at least some of the MD80, B757 and B767 out of storage again.

Why is that an important question?

First, it is important for the fight against global warming – at least politically. As most sectors were able to cut their CO₂ output in the last years, aviation was not. In fact, the goal of climate neutral growth from this year on was always questionable at best. Now, with the corona crisis, CO₂ output this year will fall compared to last year for sure. It will probably take some years to reach the level of 2019 again. And it will take longer, the more of the older jets now in storage will be replaced with A350, B787, B777-9, A320neo, B737MAX, A220 and the likes.

But the question is also important for the ones like Airbus and Boeing of course. If airlines let their old aircraft in the desert, aircraft production will soar again as new aircraft are needed for the growth after the crisis. But if older aircraft be flown again, we probably will never see the rates of 60 aircraft a month for the A320neo or B737MAX.

For the engine industry, it would be more of a financial problem when all the old(er) aircraft will be scrapped. Too many engines would then be available for part-out, flooding the aftermarket with used parts and destroying the then anyway smaller, but today very profitable business with spare parts.

Sales of the engine industry would then be heavily torted to the new engine business, which is not profitable at best, not to say loss-making.

So the profitability of the engine industry would be hurt badly -  or the industry would have to change their business model by shifting profits from the aftermarket business to the new engine sales. Of course that could only happen if all engine makers would agree to that and if airlines up to a certain point as well.

In case the profitability of the engine makers is hurt too much, they would not be able for adequate research for the next generation of engines that would be needed for an A320neo or B737MAX successor. The corona crisis could have shifted the arrival of these new aircraft the right for a few years now anyway as also Airbus and Boeing will probably have to scale back their R&D costs in the next few years.

So a good thing - a more modern and CO₂ efficient fleet in the short and mid term - could lead to a bad thing in the more distant future: later introduction of breakthrough technologies.