Aerospace industry recovery: sector eyeing bold targets amid cautious return to air travel
What will an aerospace industry recovery look like in the months and years ahead? As one of the industries that was worst hit by the pandemic, the sector is now looking ahead to ambitious recovery targets following the global slump in demand for aircraft manufacturing. Yet although lockdowns have begun to lift around the world, the pace of return to international air travel remains cautious and uncertain. This trend has notably impeded the production of aerospace manufacturers, many of which had been eagerly awaiting the widespread revival of leisure air travel this summer.
Nevertheless, in spite of the ongoing challenges posed by the pandemic, and the slow return of leisure air traffic, there is reason to be cautiously optimistic about the industry’s Covid recovery. While Rolls Royce has just announced its return to profit, Airbus and Boeing have recently indicated bold and ambitious production targets for the coming years. Additionally, while leisure aviation has been slow to pick up, Warren East – the CEO of Rolls Royce – states that business aviation has reached pre-pandemic levels.
Although the road ahead for the industry still looks uncertain—with difficult decisions to be made across the sector—should these recent announcements be celebrated as early signs of the sector’s return to post-pandemic health?
Rolls Royce’s return to profit: August 2021
While Rolls Royce, the Derby-based maker of engines for Airbus and Boeing, ‘is back into the black’, with an underlying operating profit of £307 million, it warns that the rebound of the aviation is taking longer than it had initially hoped. According to the Times, the manufacturer stated that it would ‘miss a target to deliver £750 million in free cashflow next year’ because the pace of return to air travel in 2021 had been too slow.
The group relies on its civil aerospace division for circa 50% of its turnover. Crucially, the profitability of its long-term maintenance and service contracts depends on the number of hours that its engines are in the air. Luckily for Rolls, it was not dependent on the health of the aviation sector alone: it managed to stay afloat with income from its defence business and power systems unit, which builds engines for a range of transport vehicles including boats and trains.
“The demand is there, it’s just a question of when government puts schemes in place ... to allow international travel.”
While the pace of air travel recovery is beyond the group’s control, it has decided to focus on making its operations more streamlined and efficient. Its recently developed restructuring programme will see the loss of 9,000 employees, which account for a fifth of the workforce. On 5th August 2021, Rolls also announced that it had entered talks with Bain Capital-led consortium on the potential sale of its Spain-based ITP Aero unit for a reported €1.6 billion.
Additionally, in the autumn of 2020, Rolls began a mission to raise capital to help it stay buoyant in case the aviation sector’s recovery was impeded. According to the Times, the group ‘raised £2 billion in a deeply discounted rights issue, issued £2 billion of bonds and secured a further £1 billion in loans and bank overdrafts.’
Airbus plans to produce 70 family jets per month in 2024
Turning now to Airbus, the group is aiming for bold and ambitious growth plans from 2021 – 2024. The aerospace giant, which relies heavily on its own supply chains, aims to ramp up its manufacturing targets of A320-family jets. It plans to produce 64 jets per month by the second quarter of 2023. Looking further ahead, Airbus has already started preparing to produce 70 A320s per month by the first quarter of 2024. According to Gregory Polek at AIN Online, Airbus’s production plans signal ‘a bullish outlook for post-Covid recovery of the narrow-body sector.’
Given that its current target is to produce only 45 per month in the fourth quarter in 2021, this three-year target signals a huge boost to production: a welcome surge for a sector that has struggled to sustain momentum in 2020. As industry expert Mohamed Fawzy argues in Forbes: ‘International flights saw the worst drop of 68% versus domestic flights which suffered a 40% drop. In our analysis, we saw major airlines suffering a 60% drop in revenue compared with 2019 […].’ This had a knock-on effect on manufacturing: in 2020, Airbus’s total number of commercial aircraft deliveries was limited to 556: a 34 percent drop from 2019’s production rate.
Boeing returns back to work with high targets for 2022
In a similar manner, Boeing Co (BA.N) has ambitious plans to boost its production of 737 MAX jets to 42 per month by the fourth quarter of 2022. The group has stated that it aims to reach at least 31 per month by the end of the first quarter.
According to Reuters, ‘implementation will depend on a cocktail of factors including demand, the uncertain capacity of some suppliers and Boeing's success in reducing a surplus of jets already built.’
In addition to the impact of the pandemic, the group is still recovering from damage to its safety reputation. Production of its fastest-selling 737 MAX model was suspended in 2019 after fatal crashes. When it resumed in May 2020, the aerospace group was faced with the first shockwaves of the pandemic as it dealt with a fragile supply chain and myriad regulatory approvals.
Aerospace recovery: step-by-step guide
Our 3-step guide to aerospace recovery aims to provide clear, concise and timely guidance to boost the confidence of decision makers as the industry bounces back from the pandemic.Download now