Covid-19 Crisis Puts Further Pressure on Big Jets
July 09 2020 - 10:52AM
Dow Jones News
By Benjamin Katz
LONDON -- The aviation-industry crisis triggered by the
coronavirus pandemic is exacerbating a yearslong move by airlines
away from big jets.
Rolls-Royce Holdings PLC, a bellwether for the market for
so-called wide-body aircraft, said it raised a further GBP2 billion
pounds ($2.53 billion) to help shore up its liquidity as demand for
its engines wanes among airline customers. The U.K. supplier
specializes in making and servicing engines for the industry's
biggest aircraft.
It said Thursday that its revenue will be lower than forecast
until at least 2027 as it cuts back production and has fewer
engines flying as a result, cutting back revenue related to engine
servicing and maintenance. Shares fell as much as 9.5% in
London.
Airbus SE, meanwhile, the world's biggest jet maker by
deliveries, said late Wednesday it had booked 21 orders for
wide-bodies, but received cancellations for 22 in the first six
months of the year.
As demand for flying has cratered amid the pandemic, carriers
have laid out plans to lay off or furlough tens of thousands of
workers. They have sought investor and government rescue cash and
have dramatically reduced routes. They have also scaled back
sharply plans to purchase new planes.
Now that many economies are starting to open up again, airlines
have more recently started to add back some capacity. But the type
of demand that is returning -- typically for shorter
intracontinental or domestic routes -- threatens to exacerbate a
yearslong shift by airlines into smaller, nimbler jets.
Airbus said that it received 344 new orders for narrowbodies, or
single-aisle jets, with 45 cancellations in the first six months of
the year.
Airbus and rival Boeing Co. have been pivoting in recent years
to adjust to airline customers' new reluctance to buy their biggest
jets. Instead, carriers have flocked to smaller, single-aisle
planes that are more fuel efficient, more flexible on range and can
be filled up with passengers more easily.
Unlike its main rival, General Electric Co., Rolls-Royce bowed
out of the market for the more popular and better selling
narrow-body market in 2012. Rolls-Royce has already outlined plans
to cut some 9,000 jobs from its 52,000 global workforce. Chief
Executive Officer Warren East has indicated that the company could
close or consolidate some of its manufacturing sites.
Rolls-Royce said its engines flew 50% fewer hours in the first
half of this year compared with 2019, with the trough in April when
usage was down 80%. The company has previously said it would
manufacture 250 engines this year, compared with previous guidance
for 450 deliveries.
"We play in wide-body, we do not play in single-aisle," Mr. East
said. "As much as it might be nice to be in a larger scale market,
it's a slightly academic question."
Analysts and industry officials believe business travel, which
is critical to making long-haul flying financially feasible, could
be the last travel segments to recover. Companies have been
reluctant to send employees traveling during the pandemic and wary
of the expense during an economic crisis. Many have also gotten
used to going without travel.
"We've seen this in China, that domestic recovers much faster
and to a much greater degree than international does," said Nick
Cunningham, a London-based analyst at Agency Partners. "If your
exposure is wide-bodies, then yes, you have a problem."
Airlines across the globe have been downsizing their fleets amid
the crisis. They have typically started with their bigger, less
fuel-efficient, older jets. Deutsche Lufthansa AG, for example, has
said it would retire four-engined Airbus A380s, A340s and Boeing
747s.
Qantas Airways Ltd. is permanently parking its 747 jumbo jets
and hibernating its own A380s for the next three years. Air France
and Emirates are also cutting back their operation of the
double-decker.
Boeing had twice cut its production rates for its 787 Dreamliner
before the pandemic, while development delays have hampered its
newest and bigger 777X, which has struggled to drum up a
significant order backlog. The company has also indicated that it
plans to cease production of the 747.
Airbus had taken the move to shutter the production program for
its A380 superjumbo program, the world's biggest airliner. It has
also cut production rates for its smaller wide-body, the A330.
Write to Benjamin Katz at ben.katz@wsj.com
(END) Dow Jones Newswires
July 09, 2020 10:37 ET (14:37 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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