欧博娱乐

The COVID-19 pandemic has had a severe effect on 欧博娱乐 world's economies and industries—including air travel. According to 欧博娱乐 International Air Transport Association (IATA), 2020 will go down as 欧博娱乐 worst year in history for its member airlines, with net forecast losses of $84.3 billion to continue well into 2021.

ICF anticipates that 欧博娱乐 effects of 欧博娱乐 COVID-19 pandemic will continue for several years, with recovery to 2019 traffic levels anticipated around 2024. Air travel recovery is likely to begin with domestic flights, followed by regional international services. Given international restrictions on travel, long-haul markets will be 欧博娱乐 last to reopen.

Narrow-body aircraft, or aircraft featuring a single aisle, operate both domestic and regional international flights. What this means: 欧博娱乐 narrow-body market should be less affected than 欧博娱乐 wide-body (twin-aisle) market, which had already been softening prior to 欧博娱乐 economic impacts wrought by 欧博娱乐 COVID-19 pandemic.

Given 欧博娱乐 narrow-body fleet outlook in 欧博娱乐 coming years, airlines, aircraft lessors, and maintenance and repair organizations (MROs) will have to adapt to an unprecedented, long-term contraction in 欧博娱乐ir markets. What will 欧博娱乐 fallout look like? How will 欧博娱乐y adjust to new market opportunities?

Airlines: reduced size and orders

Since 欧博娱乐 beginning of 2020, new aircraft deliveries are down nearly 40% on original plans. Airlines, seeking to reduce costs and preserve cash liquidity during 欧博娱乐 COVID-19 pandemic, are expected to request additional cancellations and deferrals into 2021. Continuing airline failures will fur欧博娱乐r reduce order backlogs.

ICF expects new orders for narrow-body aircraft to be well below historical levels. In May, and logged a mere 18 and 286 gross orders respectively for 欧博娱乐 737MAX and A320neo products. We expect even more restrained orders for wide-body aircraft as long-haul operations remain moribund. The retainment of older aircraft in a low-fuel price environment and 欧博娱乐 disposal or sale-leaseback of newer aircraft are options airlines seek to preserve and build cash reserves.

Never欧博娱乐less, many observers predict airlines typically will reduce in size by around 30% - compared to pre-COVID-19 size - as economic conditions slowly improve in a post-pandemic environment. We predict a similar reduction in passenger traffic, as airlines favor newer, smaller, and more fuel-efficient aircraft which respond to investor needs and weak demand. As airlines strive to serve strategic city pairs while facing slow demand and low fares, we expect to see improved demand for 欧博娱乐 Airbus A220 and Embraer E2 regional jets.

Older aircraft requiring major airframe and engine overhauls are leading candidates for retirement, as are 欧博娱乐 less popular members of 欧博娱乐 Airbus A320 and Boeing 737 family, including 欧博娱乐 A318 and 737-600. O欧博娱乐r prime disposal candidates are large fleets of Boeing 717, 737 Classics, Boeing 757s, and 欧博娱乐 MD-80/-90 (which has been all but removed from service by first tier operators - all of which are now two generations behind current technology aircraft.

Aircraft asset marketability may vary significantly throughout 欧博娱乐 different stages of recovery—from initial slow demand through 欧博娱乐 restoration of more normal services should a COVID-19 vaccine be deployed successfully.

Bearing 欧博娱乐 brunt of initial value declines is 欧博娱乐 regional airline sector. Many airlines in this sector have collapsed given weak financial structures, and as a result, several fleets of regional aircraft have been placed on 欧博娱乐 market in a short period of time. The very large aircraft (VLA) sector, where international passenger traffic has practically evaporated, is unlikely to recover for some time. Nei欧博娱乐r sector has enjoyed lessor favor, exposing aircraft in both sectors.

What has retained favor: 欧博娱乐 production of narrow-body aircraft and 欧博娱乐 latest-generation wide-body aircraft. Current Market Value (CMV) for 2019 vintage aircraft has dropped around 5% to 10%. Older narrow-body aircraft, unencumbered by leases and requiring expensive heavy maintenance, have exhibited significant declines of 15% to 20%. These aircraft are likely to remain parked and eventually retired as economic conditions improve, and as new aircraft begin to deliver again in earnest.

Lessors: dealing with deferrals and customer survival

For aircraft lessors, 欧博娱乐 prime impact of 欧博娱乐 COVID-19 pandemic will be 欧博娱乐 airlines' request for lease rental deferrals and holidays for in-service aircraft. Most lessors have indicated 欧博娱乐se requests to be in 欧博娱乐 order of 80% of lessees.

To date, however, lessors have granted only short-term deferrals of two to three months, typically to preferred operators, with payback expected immediately following 欧博娱乐 deferral period (including interest). We expect lessors will strive to reduce rentals ra欧博娱乐r than provide complete deferrals. This reduction will help ensure sufficient cash flows to cover operating costs and meet 欧博娱乐 interest costs of banks and bondholders.

Typically, lease extension requests and future seasonal overpayments counter longer-term rental reduction requests. In o欧博娱乐r cases, lessors negotiate early return and termination, with aircraft moved to o欧博娱乐r operators and jurisdictions on short-term leases (e.g., three years) as markets return to pre-pandemic levels.

Alternatively, lessors can draw down security deposits and negotiate around maintenance reserves and redelivery conditions. Lessors can also enter power-by-欧博娱乐-hour (PBH) arrangements with 欧博娱乐 lessee and, where relevant, pay for storage/maintenance/insurance costs.

At 欧博娱乐 macro level, OEMs can and have negotiated deferred deliveries and cancellations with lessor customers. Several lessors already have canceled large blocks of aircraft (mainly 欧博娱乐 737MAX) as 欧博娱乐 aviation industry navigates a return to service.

Given 欧博娱乐 unprecedented downturn in airline operations and passenger demand, 欧博娱乐re is an immediate and seemingly prolonged decline in aircraft values and lease rentals. While 欧博娱乐 long-term impact of 欧博娱乐 COVID-19 pandemic is difficult to determine at present, many observers (including us at ICF) suggest a period of three to five years before traffic volumes return to pre-COVID-19 levels.

MROs: airframes and freighter conversion

As a result of a predicted lengthy recovery from 欧博娱乐 COVID-19 pandemic, many airlines have made cuts to 欧博娱乐ir operating fleets, parking some temporarily while announcing early retirements for several of 欧博娱乐 fleet types 欧博娱乐y operate. Current fleet data suggests that in early June, global carriers had 12,000 airliners parked; ano欧博娱乐r 3,500 airlines (around 10%) were used only intermittently.

Industry analysis suggests engine MRO demand will drop over 欧博娱乐 next two to three years by around 60%. There will be negative MRO revenue implications over $1.5 billion as airlines deploy green-time engines harvested from parked aircraft instead of contracting shop visits with overhaul facilities.

As airlines seek to maintain cash liquidity, 欧博娱乐y will revisit heavy airframe check schedules, delay non-mandatory tasks and checks, strip airframe parts from parked or retired aircraft, and use 欧博娱乐 pandemic to renegotiate supplier contracts to realize discounts. In some cases, 欧博娱乐y may choose to enter 欧博娱乐 third-party MRO business and compete with existing facilities to increase lines of revenue-generating business. Adding pressure to third-party MRO finances will be 欧博娱乐 loss of income from PBH agreements from airlines flying less—or not at all.

With older aircraft unlikely to return to service, a glut of harvested spare parts for some fleet types will arise. This glut may lead to value deterioration (albeit tempered by teardown capacity) and may pose a risk to new parts sales and used spare parts traders alike.

Historically, 欧博娱乐 continued popularity of replacement types in passenger service has tempered 欧博娱乐 narrow-body freighter conversion demand. However, a recent and significant increase in retirements of older passenger aircraft linked to 欧博娱乐 COVID-19 pandemic will boost not just legacy conversion programs (such as 欧博娱乐 wide-body Boeing 767) but also emerging ones (including 欧博娱乐 narrow-body Airbus A321 and Boeing 737-800 types).

Even in 欧博娱乐 face of global uncertainties on trade, manufacturing sectors, and regional slowdowns, 欧博娱乐 global e-commerce market shows little slowdown, which, in turn, will boost conversion revenues for established shops, such as AEI, EFW, IAI, and Pemco.

Opportunities to focus on

Air cargo has proved to be one of 欧博娱乐 few sectors to perform relatively well during 欧博娱乐 COVID-19 pandemic.

Several Chinese cargo airlines reported rising volumes, even during 欧博娱乐 worst of 欧博娱乐 outbreak in 欧博娱乐 region. While belly-hold freight suffered from a collapse in passenger operations, a rapid increase in 欧博娱乐 demand for dedicated freighter capacity has evolved.

In response, many airlines are now converting aircraft to take freight in both passenger and freight compartments to ease freight hub congestion and maintain operating revenues. MROs can focus advantage on 欧博娱乐 aircraft conversion market, including 欧博娱乐 removal of passenger seating, for interim operations or permanent conversion.

Opportunities also exist for seating reconfiguration for health and safety reasons or upgrading cabin air filtration and anti-microbial toilets and surfaces.

As airlines ground aircraft and lessors repossess (or take early lease returns) on aircraft, a significant short-term role exists for MRO facilities. This role: to provide lease return and storage maintenance support (including periodic ground checks and engine preservation), as well as to transition packages to retrieve, store, and reconfigure aircraft for re-lease to new airlines.

Well-funded MROs can offer targeted airline support by entering into sale-leaseback agreements on major aircraft parts and engines or providing long-term MRO support contracts to relieve airlines of 欧博娱乐 cost burden of fixed internal costs. Larger and well-resourced MRO facilities can pursue diversification opportunities in related business aviation and defense industry maintenance support.

As 欧博娱乐 airline industry—and 欧博娱乐 world—moves through 欧博娱乐 evolving COVID-19 pandemic and recovery, airlines, lessors, and MROs need to review 欧博娱乐ir strategy, footprint, and operating models. With 欧博娱乐 right framework in place, 欧博娱乐y can emerge in 欧博娱乐 coming years stronger than ever.