The consequences of COVID-19 on the aerospace industry
The airline industry has been losing altitude for several months, with many airlines seeing traffic reduced to less than 50%, mainly because of the travel restrictions we are facing around the world.
This has also had an impact on employment. Around 300,000 are currently employed in the French aerospace industry, but since the start of the COVID-19 pandemic, there has been a 30% drop in workload, or the equivalent of 90,000 people. Some companies have been forced to resort to employment-safeguarding redundancy programs. However, a potential loss of 30,000 to 40,000 jobs over the next two years has not been ruled out in the sector.
At Airbus, CEO Guillaume Faury announced in mid-2020 that “production and deliveries will be 40% lower than initially planned” for a period that could last until the end of 2021. In April, the pandemic had already forced the manufacturer to reduce production by 30%. Lots of orders have been cancelled and postponed, resulting in a slowdown of production and assembly lines.
With aircraft grounded and free-falling air traffic leading to a drastic reduction in deliveries and numerous order cancellations, the aviation industry is undoubtedly facing a major economic challenge. And there will certainly be more turbulence before we return to the cruising speed of previous years. Fortunately, some solutions are taking shape to try to help.
Support measures to save the sector
In Germany, a €600 billion economic stabilization fund has been set up to provide support to accelerate research and development projects, as announced by Dirk Hoke, President of the BDLI (the German Aerospace Industries Association) and CEO of Airbus Defence and Space.
In France, GIFAS (the French Aerospace Industries Association) has been working with the French government to develop a plan to revive the industry, including investment from the BPI (a French Public Investment Bank). “We’re looking to create a fund capable of mobilizing between €700 million and €1 billion”, says Eric Trappier, GIFAS Chairman and CEO of Dassault Aviation.
This state-backed mobilization fund will bolster certain companies, particularly SMEs, to prepare them for future competitiveness. Furthermore, CORAC (Civil Aeronautics Research Council) has mobilized €1.5 billion over 3 years from 2020 to 2022, which French SMEs can apply to for support.
These support measures are designed, firstly, to help develop new technologies to further companies’ digital transformation and secondly, to help address future environmental issues by moving towards low-carbon, connected aviation.
All of this is accompanied by more immediate measures such as short-time working, which has been in place for several months now, in order to preserve as much of the sector’s skills as possible and help it to get through the crisis with minimal impact.
A particularly exposed supply chain
Éric Trappier has also emphasized the importance of the supply chain. “The major challenge facing the aviation industry is to save our supply chain, which is made of equipment manufacturers and small and medium-sized businesses located throughout the country,” he said at the Paris Air Forum 2020.
As we saw earlier, the slowdowns in production rates are significant, and suppliers are strongly affected by these decelerations. In fact, most had already invested for an expected ramp-up. For example, in July 2019, just a few months before COVID-19 began, Airbus and Safran announced that they would be increasing production of the A320 to 65 per month by 2022, a 55% increase compared to 2015.
Faced with these sudden changes in expectations, some suppliers have ended up with excess production capacity and inventory that will take time to disappear. The financial consequences are particularly worrying because most of these suppliers, particularly Tier 2 or Tier 3 suppliers, are essentially medium-size companies.
Innovation: the key weapon to get out of the crisis
Countries like the United States and China have been able to respond quickly and in a robust way, mainly because they have invested massively in technology. If companies hope to stay on the radar, they need to be able to stay airborne during the pandemic but also be prepared for the market that will emerge once the crisis is over but also now, still in the midst of the pandemic.
Investing in such new tools will be essential to ensure competitiveness. “Digital technology is an absolutely essential tool for the entire industry,” says Éric Trappier. The digital transition doesn’t need to just happen in large groups but in SMEs too. The investments planned in France and the rest of Europe are an excellent opportunity for the latter to find the resources to actively implement this digitalization.
“The way out of the crisis is through innovation” – Éric Trappier, Chairman of GIFAS and CEO of Dassault Aviation
Global crises like the COVID-19 pandemic are difficult to predict, but companies can reduce the impact of such events by investing in supply chain resilience as early as possible.
By having visibility of forecasts, companies will be able to accurately anticipate demand and therefore better protect themselves, and tools such as Artificial Intelligence can make these forecasts more reliable and stable. By adopting a network-oriented approach and integrating all stakeholders, it is possible to further increase resilience by obtaining even more reliable information, something which is essential in this period of uncertainty.