Boeing president and CEO Dave Calhoun has announced the firm’s strategy for the current COVID-19 crisis. According to Calhoun, “our first priority is and will continue to be protecting the health and safety of our people, their families and the stakeholders we touch. We're assessing and enhancing the safety of every one of our sites on a daily basis.”
Calhoun expects that commercial aircraft deliveries will continue at a much-reduced rate, as well as “maintaining the stability of our supply chain so we're ready to ramp up again when the pandemic is over.”
Boeing now expects substantial changes to the commercial aircraft market post-COVID-19, and is planning for reduced demand starting with a voluntary layoff program while continuing to recruit for future projects. According to the company, the details of the plan will be announced in three to four weeks.
“Most importantly, it means doing everything possible to keep this team intact. We can't get back to regular operations again after the crisis if we don’t have the people and skills to make that happen,” states Calhoun. “It will take time for the aerospace industry to recover from the crisis. When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want, and need will likely be different. We will need to balance the supply and demand accordingly as the industry goes through the recovery process for years to come.”
Before the pandemic, FAA approval for the 737MAX return to flight was widely anticipated for early summer, but current flight restrictions and low demand make it unlikely that airlines are now in a hurry to take delivery, says Alexandre de Juniac, International Air Transport Association (IATA) CEO.
“Airlines were hit by a sledgehammer called COVID-19 in February. Borders were closed in an effort to stop the spread of the virus. And the impact on aviation has left airlines with little to do except cut costs and take emergency measures in an attempt to survive in these extraordinary circumstances. The 14.1 percent global fall in demand is severe, but for carriers in Asia-Pacific the drop was 41 percent, and it has only grown worse. Without a doubt this is the biggest crisis that the industry has ever faced.”
According to the IATA, demand has been falling significantly since the crisis began, with traffic data for February 2020 showing that demand (measured in total revenue passenger kilometers, or RPKs) fell 14.1 percent compared to February 2019. This was the steepest decline in traffic since 9/11 and reflected collapsing domestic travel in China and sharply falling international demand to/from and within the Asia-Pacific region, owing to the spreading COVID-19 virus and government-imposed travel restrictions.
February capacity, measured by available seat kilometers (ASKs) fell 8.7 percent as airlines scrambled to trim capacity in line with plunging traffic, and load factor fell 4.8 percentage points to 75.9 percent.
At this point it’s unknown whether air travel restrictions will be lifted in a global, coordinated way, or nation by nation as the pandemic subsides. One possibility is a return to service that relies heavily on smaller, long range narrowbodies such as the Airbus A220. Boeing was exploring a replacement for the narrowbody 757, and a majority ownership joint venture with Brazilian narrowbody maker Embraer—however, with the firm now tapping the full amount of their credit facilities, new aircraft are strictly long term projects.
Could Boeing possibly fail, or require a bailout? An industry-wide bailout of the U.S. aviation sector is a possibility, although Calhoun has rejected any cash that would require an equity stake in the company. Boeing and its subsidiaries have more than 138,000 employees working in 50 states, and supports a supply chain of over 12,000 businesses who in turn employ 1.3 million workers.
With $45 billion paid to that supply chain, Boeing is more important to the U.S. economy than the automakers, and is too big to fail in the conventional sense, representing almost 10 percent of the Dow Jones Industrial Average in 2019.