Turning a crisis into an opportunity : How aerospace firms must exploit the unique situation to its advantage

Turning a Crisis into an Opportunity: How Aerospace Firms Must Adapt

Overview

The aerospace industry entered 2020 with high expectations due to globalization, robust economic activity, and increasing leisure travel. However, the onset of the COVID-19 pandemic drastically altered the landscape, leading to significant challenges and disruptions.

Key Challenges

1. Declining Passenger Traffic

   • June 2020: Airline passenger numbers fell by 80% compared to the same month in 2019.
   • Aircraft Grounding: The number of aircraft in use dropped from over 27,000 pre-COVID to just 9,816.
   • Bankruptcies: Several airlines, including Air Italy, Flybe, and Virgin Atlantic, declared bankruptcy.

2. Supply Chain Disruptions

   • Supplier Struggles: Smaller suppliers, often exclusive to OEMs, faced severe financial distress due to geographic limitations and transportation restrictions.
   • Case Study: Precision Castparts Corp., a large American supplier, experienced a $9.8 billion write-down and laid off 10,000 employees.

3. Financial Pressures

   • Revenue Decline: Boeing's commercial airline revenues fell by 65%, while Airbus saw a 40% drop.
   • Cash Management: Aerospace firms are conserving cash and minimizing discretionary spending to survive the crisis.

4. Safety Concerns

   • Passenger Reticence: Travelers are hesitant to fly due to safety concerns and social distancing measures.
   • Cabin Redesign: New designs such as double-decker rows, seat dividers, and touchless solutions are being explored.

5. Postponed Purchases

   • New Aircraft Delays: Airlines are delaying the purchase of new aircraft, focusing on survival strategies.

Four-Point Change Agenda

1. Consolidation Across the Industry

   • Supplier Support: OEMs or Tier 1 suppliers can provide bailouts or acquisitions to prevent supply chain disruption.
   • Government Intervention: Government support could be sought, though trade-offs may limit its effectiveness.

2. Redesign the Cabin

   • Innovative Designs: New cabin layouts like double-decker rows and touchless solutions are being considered.
   • Technological Solutions: Technologies like IoT and UV-powered cleaning are being explored to enhance safety.

3. Focus on Service Budgets

   • Retrofitting and Refurbishing: Existing aircraft assets will be repurposed to ensure safety and longevity.
   • Service Expansion: Initiatives like Bombardier's Line Stations are being expanded to provide enhanced services.

4. Leverage Technology

   • Cloud and Digital Transformation: Adopting digital technologies can help convert capital investments to operational expenses.
   • Cost Reduction: Outsourcing non-core functions can lower operating costs.

Conclusion

While the aerospace industry faces unprecedented challenges, it also presents opportunities for innovation and strategic adaptation. By implementing these strategies, aerospace firms can emerge stronger from the crisis.