Ian Pascoe
20 May 2020
The COVID-19 pandemic has brought massive turbulence to every sector of business around the world. The aviation industry has been hit particularly hard, with air travel seeing its most dramatic sustained decrease in modern history. Lockdown measures, travel bans, and social distancing imperatives have effectively grounded a huge portion of the world’s aircraft fleets.
More than 16,000 passenger jets are no longer flying. According to the International Civil Aviation Organization (ICAO), there may be up to 1.2 billion fewer air travellers than normal by September 2020. The International Air Transport Association (IATA) projects that airlines will lose up to $252 billion in 2020, putting 25 million jobs at risk. Airline share prices have also fallen by 25% to 50% since the start of the outbreak, despite significant support from many governments.
It is not just airlines that are feeling the pinch. Airports, aircraft lessors, OEMs, manufactures, cargo handlers, and training academies – essentially all components of the aviation industry ecosystem – are in crisis mode.
The outlook is undeniably bleak. But there are many steps that all businesses can take in order to soften the blow. If aviation organisations heed those general recommendations, while implementing additional measures that are specific to the industry, they can put themselves in the best position to survive the current crisis. They will also be able to take full advantage of the eventual recovery when businesses, and planes, take off once again.
Apply for all forms of government relief
Governments around the world are currently passing expansive stimulus packages and offering significant tax relief, with certain provisions intended specifically for the aviation industry. In the United States, for example, airlines are set to receive $25 billion in grants and loans.
Collecting cash is of paramount importance in times of crisis, and aviation businesses should assiduously apply for every government relief measure available to them.
Make the most of transactions
A trusted partner can help carefully appraise and analyse existing lease agreements, with a view toward restructuring and negotiating these contracts with Lessors. This process should ensure lease contracts are benchmarked against market rates, confirm that maintenance reserve balances are correct, and that material contractual items are accurately reflected in agreements. The review of contract management systems can identify underbilling of maintenance reserves and prevent issues from arising during sales, by pinpointing items that will affect the purchase price of lease encumbered assets.
Perform financial modelling
Using the latest software to run financial modelling scenarios can provide invaluable insights into liquidity, leasing, transfer pricing, fleet analysis, maintenance-related cash flow, calculation of intangibles, buy or hold analysis, securitisation, and more. Accurately determining cash flow and optimum divestment opportunities through modelling will allow businesses to maximise shareholder value.
Obtain an independent review
An independent business review of all finances and operations from a trusted partner can ensure that the business is taking advantage of every opportunity. Such a review can greatly assist with financial modelling as well as advisory services for transactions. Moreover, an independent reviewer can provide much-needed cybersecurity assistance and financial operations support.
Improve processes
While it may seem somewhat counterintuitive, the ongoing COVID-19 situation provides an opportunity to optimise business processes. Far-sighted leaders can begin to challenge prior assumptions and find new ways to manage operations. This period of slowdown can provide departments and even entire companies with the time they need to implement standardised and integrated systems across all functions.
Reducing waste is an absolute must during this period. Yet the benefits of optimisation will remain long after the current crisis passes.
Clearer skies ahead
The aviation industry is facing a strong headwind. But by seeking out assistance where possible – from government as well as third parties – and by placing efficiency at the forefront of operations, aviation organisations can make the most of their transactions, while also improving their internal processes.
The COVID-19 shutdowns have indeed been devastating for the world of aviation, but with the right decision-making and strategic partnerships, businesses in this now-grounded industry can position themselves to take flight again.