COVID-19 Infects Aviation!
After a hectic few days the Corona Virus, codenamed COVID-19, continues to cause great concern to governing bodies worldwide. The virus’s rapid spread has single handedly disrupted the planet by infecting and potentially killing those who catch it. Oxford economics predicted that if the virus spread to those outside Asia (which it has), it could decrease global growth by 1.3%. Although that may not sound like a lot, in monetary terms it equates to $1.1 trillion in lost income, (Inman,2020).
Many countries have implemented a travel ban, President Trump recently stated that foreigners who have been in Europe in the past two weeks will not be allowed into the US.
As demand for air travel decreases due to fears of catching the virus, airlines have started to suspend/considerably reduce operations. Business insider claims that such a decrease in air travel is reminiscent of that witnessed during 9/11. Airlines such as American, United and Jetblue have halted their hiring process due to COVID-19, a position that has juxtaposed itself as the demand for new pilots seemed immeasurable just a month ago, (Pallini,2020). Moreover, airlines have had to slash domestic and international ticket prices during a time which would normally have seen a rise, especially with Easter break and Spring looming on the 2020 calendar.
For some of you that may think airlines will recover amid this period of turmoil due to the sheer size of the industry, editor Dan Reed of Forbes Aerospace and Defense sector disagrees. His findings express that, “without financial aid from their governments, half of the world's approximately 800 airlines could be bankrupt by the end of May.” This stance is taken by analysing the airlines’ balance sheets which show that they rely on constant cash flow to keep up payments of their primary assets, or in other words their aircraft. The majority of airlines have leases lasting 12-15 years or loans lasting 20 years plus. In order to pay this debt off monthly airlines require constant influx of cash, (Reed 2020). If passenger demand is heavily reduced at any time it can have a detrimental effect on the airlines’ balance sheets. With Covid-19 not showing any signs of slowing down it's definitely plausible that this prophecy could come to fruition.
The fate of the industry truly depends on the level of funding they will receive from governing bodies and whether banks will be flexible in regard to loan/lease payments. The Wall Street Journal reported that Boeing has asked for approximately $60 billion in loan payments from the US government. To put that into perspective after the 9/11 attacks almost $15 billion was given to repair the damage caused to the industry, (Tangel and Cameron, 2020). Whether this would be in the form of interest free payments remains to be seen, all we can be sure of is that it will take a large amount of capital to repair the impact COVID-19 has had on the aviation industry.
As for flight training students such as myself, my flight school has closed until April 7th. For those reading this not knowing the current state of Northern California, currently there is a shelter in place whereby residents are being told to stay at home and only go outside if absolutely necessary. The shelter is in place until April 7th. Therefore I have been at home studying and trying not to focus on the fact that I probably won't be able to fly for a few weeks. I hope that everyone out there is staying safe and only travelling/going out when necessary. It's easy to overlook the seriousness of this virus, but it is important to bear in mind that anyone could be a carrier and therefore putting others at risk. This virus has proved to be fatal. Stay safe everyone!
References:
Inman, P. (2020) ‘Coronavirus “could cost global economy $1.1tn in lost income”’, Guardian, Available at: https://www.theguardian.com/world/2020/feb/19/coronavirus-could-cost-global-economy-1tn-in-lost-output.
Pallini, T. (2020) ‘27 airlines are suspending or severely reducing flights as coronavirus-related travel restrictions shake the industry — here’s the full list’, Business Insider, March, p. 1. Available at: https://www.businessinsider.com/coronavirus-global-airlines-suspending-operations-as-demand-worsens-2020-3.
Reed, D. (2020) ‘Could Coronavirus Really Wipe Out Half The World’s Airlines And Change Aviation Forever? One Keen Observer Thinks So.’, Forbes, March, p. 1. Available at: https://www.forbes.com/sites/danielreed/2020/03/17/could-covid-19-really-wipe-out-half-the-worlds-airlines-and-change-global-aviation-forever-at-least-one-keen-observer-thinks-so/#6ea1f43c20bf.
Tangel, A. and Cameron, D. (2020) ‘Boeing Asks for $60 Billion in Aid for U.S. Aerospace Industry’, The Wall Street Journel, March, p. 1. Available at: https://www.wsj.com/articles/boeing-asks-for-60-billion-in-aid-for-u-s-aerospace-industry-11584489179.