- 05 Aug 2020
- Rolland Vincent
- Market Insight
The big story has been the immediate impact of COVID-19 on the BizAv market – but what is the medium-term impact likely to be as the industry looks towards year-end and 2021? Rebecca Applegarth asks analysts Brian Foley and Rollie Vincent…Back to Articles
All eyes are on the remainder of 2020, and specifically how business continues to recover from the impacts of COVID- 19. There have been a multitude of perspectives on the marketplace, and analysis aplenty as the Year-over-Year numbers unfold on a monthly basis. But as Fall arrives, interest starts to shift to the medium-term impact on the industry.
“There’s no getting away from the fact that the impact of COVID-19 on our societies, economies, and the Business Aviation industry is profound,” says aviation analyst Rollie Vincent. “While we are witnessing early signs of a recovery in flight operations, demand has not recovered by any stretch of the imagination.
“Border controls and quarantine measures have squeezed international flight operations, effectively cutting off most business travel,” he reflects. “While we have been seeing month-over-month improvements in flight operations, we are still well below recent activity levels.”
“In March, Business Aviation companies went into self-preservation mode until the safety of themselves, their families and employees was assured,” fellow analyst Brian Foley adds. “Concurrently, sources of finance were identified, aid was applied for (where qualified), and businesses right-sized for the new conditions.
“By taking these early precautions and planning for a new workload level, most companies have, by-and-large, survived unless they had been already heavily indebted at the onset.”
Overall, Foley says things are improving at a more rapid rate than many expected, although he cautions that there will still be some soft patches, such as for those relying on high business jet utilization and new aircraft manufacturing.
Fall & Winter 2020 Outlook
With the scene set for how the industry generally has been faring to date, what can we expect to see for the remaining months of 2020? According to Foley, slow and steady improvement appears to be the most likely scenario in the weeks and months ahead.
“I feel that on average most companies will be down in the order of around 25% for the year,” he says, though he adds that there will naturally be exceptions (both higher and lower) to that rule.
“The trajectory of recovery will differ widely by market segment, region, and other factors,” Vincent suggests, highlighting that charter flying has rebounded more quickly than private and corporate flight operations.
Moreover, while governments and business leaders have been quick to react to the new realities of life in a COVID-19 world, the many financial support programs that have been instituted have been generous and timely, but temporary.
“Much of this funding was predicated on the belief that the economy would drop sharply in Q2 and recover quickly in Q3 and perhaps Q4 2020,” Vincent notes.
“While this may be the shape of the recovery in many parts of the world, the situation in the US is quite different, with a resurgence of coronavirus cases in many parts of the country in June/July, and a divisive Presidential election upcoming in November.
“With 6 in 10 of the world’s business jets based in the US, a delayed recovery from the COVID-19 pandemic and ongoing restrictions in international flying were not anticipated in the various payroll support packages and business grants/loans that have helped support industry,” he suggests.
And Vincent believes that employers such as the commercial airline industry could face some very difficult decisions to lay-off large numbers of people in October 2020 unless financial assistance is extended (something which was not guaranteed at the time of writing).
“A healthy commercial airline industry helps Business Aviation thrive,” Vincent adds. “It provides a relatively low-cost way of moving crews, parts and a plethora of necessary goods to where they are needed in our ‘on-demand’ world.”
Business Aircraft Sales Projections
Of course, a key indicator of the industry’s health is aircraft sales (both new and pre-owned). “Pre-owned aircraft sales seem to have perked up already,” Foley suggests. “In 2020 they had already started slower than in previous years, so it was arguably going to be a ‘down’ year to begin with.
“I believe brokers will see a year with transactions finishing around 2016 levels. Though that’s not as great as 2017-2019, it’s still not too shabby.”
“Pre-owned sales are likely to recover before new aircraft sales,” Vincent details.
“This will be for a number of reasons, including lower, more affordable, price points; more choice and inventory availability; and (we think) new business models that are built on a foundation of previously flown aircraft.
“Across the industry, new aircraft sales are likely to take longer to recover,” he elaborates. “However, there will be exceptions for aircraft that offer unique and attractive capabilities, and for OEMs that offer superior product and service quality and value-for-the-investment.”
“New sales are stubbornly slow as buyers still aren’t fully confident to pull the trigger,” Foley says. “New deliveries should also be down around 25-30% compared to 2019, with deliveries not returning to 2019 levels for a few years.”
Vincent predicts that overall demand for new business aircraft will remain quite flat for the next few years, with orders concentrated among the more recently certified models.
“Business Aviation has a much grander image at the outset of this recession than it did during the global financial crisis,” he says. “A key challenge will be to see if we as an industry can find ways to lower our cost structures, improve our asset utilization, and become more rewarding stewards of capital for investors.”
So with the scene set, what has to happen for the future that Vincent and Foley paint? “The trifecta would be for the economy to improve to support current stock valuations; for no surprises in the US November election; and a COVID-19 vaccine in the first half of 2021,” Foley suggests.
“An effective, affordable, and widely available vaccine this year would be the best news our industry, economies and societies could receive,”
Vincent concludes. “Until this is discovered and distributed, fear will continue to play an outsized role that holds us back from reaching our potential and blowing right past any recovery forecasts that are out there.”
More information from www.brifo.com or www.navigating360.com