The Boeing Company has reported first-quarter revenue of $16.9 billion, a loss of $1.35 billion primarily reflecting the impacts of COVID-19 and the 737 MAX grounding.
Boeing recorded operating cash flow of ($4.3) billion.
“The COVID-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability,” said Boeing President and CEO David Calhoun.
“Our primary focus is the health and safety of our people and communities while we take tough but necessary action to navigate this unprecedented health crisis and adapt for a changed marketplace.”
As the pandemic continues to reduce airline passenger traffic, Boeing says it sees significant impact on the demand for new commercial airplanes and services, with airlines delaying purchases for new jets, slowing delivery schedules and deferring elective maintenance.
To align the business for the new market reality, Boeing is taking several actions that include reducing commercial airplane production rates. The company also announced a leadership and organizational restructuring to streamline roles and responsibilities and plans to reduce overall staffing levels with a voluntary layoff program and additional workforce actions as necessary.
Boeing says it has taken action to manage near-term liquidity, as it has drawn on a term loan facility; reduced operating costs and discretionary spending; extended the existing pause on share repurchases and suspended dividends until further notice; reduced or deferred research and development and capital expenditures; and eliminated CEO and Chairman pay for the year.
It said that access to additional liquidity will be critical for Boeing and the aerospace manufacturing sector to bridge to recovery, and the company is actively exploring all of the available options. Boeing believes it will be able to obtain sufficient liquidity to fund its operations.
“While COVID-19 is adding unprecedented pressure to our business, we remain confident in our long term future,” said Calhoun. “We continue to support our defence customers in their critical national security missions. We are progressing toward the safe return to service of the 737 MAX, and we are driving safety, quality and operational excellence into all that we do every day. Air travel has always been resilient, our portfolio of products and technology is well-positioned, and we are confident we will emerge from the crisis and thrive again as a leader of our industry.”
Boeing Commercial Airplanes has updated its production rate assumptions to reflect impacts from COVID-19 on its operations and demand outlook, and will continue to assess them on an ongoing basis.
The 787 production rate will be reduced from 14 per month to 10 per month in 2020, and gradually reduced to 7 per month by 2022. The 777/777X combined production rate will be reduced to 3 per month in 2021. At this time, production rate assumptions have not changed on the 767 and 747 programs.
Commercial Airplanes backlog included over 5,000 airplanes valued at $352 billion.
Global Services first-quarter revenue was $4.6 billion, reflecting higher government services volume, largely offset by lower commercial services volume due to COVID-19. (Table 6). First-quarter operating margin increased to 15.3 per cent primarily due to favourable government services performance.
Global air traffic plunged in the month of March with steeper falls expected in April says IATA.
The International Air Transport Association (IATA) announced global passenger traffic results for March 2020 today, showing that demand (measured in total revenue passenger kilometers or RPKs) dived 52.9% compared to the year-ago period.
IATA said that this was the largest decline in recent history, reflecting the impact of government actions to slow the spread of COVID-19. In seasonally adjusted terms, global passenger volumes returned to levels last seen in 2006. March capacity (available seat kilometers or ASKs) fell by 36.2% and load factor plummeted 21.4 percentage points to 60.6%.
“March was a disastrous month for aviation. Airlines progressively felt the growing impact of the COVID-19 related border closings and restrictions on mobility, including in domestic markets. Demand was at the same level it was in 2006 but we have the fleets and employees for double that. Worse, we know that the situation deteriorated even more in April and most signs point to a slow recovery,” said Alexandre de Juniac, IATA’s Director General and CEO.
International Passenger Markets
March international passenger demand shrank 55.8% compared to March 2019 said IATA. That is much worse than the 10.3% year-to-year decline in February. All regions recorded double-digit percentage traffic declines. Capacity tumbled 42.8%, and load factor plunged 18.4 percentage points to 62.5%.
Domestic Passenger Markets
Demand for domestic travel shrank 47.8% in March compared to March 2019 with double-digit percentage declines in all markets. This compared to a 21.3% year-to-year decline in February. Capacity fell 24.5% and load factor plunged 26.0 percentage points to 58.1%.
The Bottom Line
“The industry is in free fall and we have not hit bottom. But there will come a time—soon, I hope—when authorities will be ready to begin easing restrictions on mobility and opening borders. It is imperative that governments work with industry now to prepare for that day. It is the only way to ensure that we have measures in place to keep passengers safe during travel and reassure governments that aviation will not be a vector in the spread of the disease. We must also avoid the confusion and complexity that followed 9/11. Global standards that are mutually accepted and operationally practicable will be mission-critical to achieving this. The only way to get there is by working together,” said de Juniac.
Air New Zealand is celebrating its 80th birthday today.
Despite recent turbulence experienced by the aviation industry, in its video 80 years of Air New Zealand the airline takes a moment to reflect on some of the special memories it’s shared with customers both at home and abroad over the past eight decades.
Since its first TEAL flight to Sydney, a nine-hour journey using a Short S30 flying boat on 30 April 1940, Air New Zealand has connected Kiwis and their products with the world. The airline has also played a key role representing New Zealand on the world stage with its world-class service delivery, operational excellence, passion for innovation with its safety videos and products like the SkyCouch, and commitment to sustainability.
Chief Marketing and Customer Officer Mike Tod says the 80th anniversary birthday is a time to reflect on milestones and thank New Zealanders for their continued support of the airline, which has been named best in the world on numerous occasions.
“While this birthday sees the airline operating in some of the most extraordinary circumstances in its 80-year history, the heart and passion of our people remain as strong as it was on that historic first day of operation,” Mr Tod says.
“The Kiwi can-do spirit is woven into everything we do and we look forward to building on the legacy of the past 80 years as we open a new chapter in our airline’s history and begin the rebuilding process after the severe impact of Covid-19.”
Air New Zealand General Manager Global Brand and Content Marketing Jodi Williams says the airline’s video released today, The Story of the Koru, expresses the true meaning of exploration and what it means to be a Kiwi abroad.
“New Zealanders are intrepid explorers, and people often tell me it’s the Koru and the “kia ora” they experience when they step onboard our aircraft that makes them feel like they’re already home. Over the years the people, destinations and aircraft may have changed, but the Air New Zealand Koru remains constant.
“The koru is symbolic of new life and new beginnings, and now is more important than ever to be reminded of how resilient we are as a business and as a nation – to continue to regenerate and bring new life to how we travel and connect with each other.”
What will Virgin Australia look like on the other side of administration – if it survives?
That is the question 10,000 staff and almost 11 million Velocity frequent flyers are desperate to know.
The answer all depends upon how successful the administrators are in reducing the debt by restructuring and then which group is the successful bidder.
And then there are some twists.
One of the buyers mentioned is US-based Indigo Partners, which owns stakes in several ultra-low-cost airlines around the world.
It has a controlling interest in US-based Frontier Airlines and Chilean JetSmart, as well as stakes in Mexico-based Volaris and European low-cost carrier Wizz Air.
If it is successful in acquiring Virgin Australia it would almost certainly take the airline down market, – below Jetstar – and quit international services.
But why would you do that when Jetstar is so well established in the market and frequent flyers can earn Qantas Points.
It makes no sense and if that was the flight path to the ultra-budget section of the market then you will lose the majority of the Velocity frequent flyer members and staff morale would plummet.
At the other end of the scale are equity groups such as BGH Capital with one of its investors Singapore’s sovereign wealth fund Temasek Holdings Ltd, which said in 2018, that it is interested in co-investing with BGH Capital “should a new investment opportunity arise.”
Singapore-based Temasek which was a partner in the original set up of BGH in 2018 is also indirectly a major shareholder in Virgin Australia via its majority holding in Singapore Airlines which owns 25 per cent of Virgin Australia.
But observers in Singapore say its way too early to make that call.
“Singapore Airlines and Temasek may be involved but possibly not initially,” one analyst said.
“Singapore Airlines is totally preoccupied with its own survival and what that looks like.”
However, assuming a Singapore connection in a rebirth of Virgin it’s likely that the airline will remain up-market.
The other scenario is a hybrid model which keeps the business class and the Economy X but pitched down market slightly, more like a US domestic carrier such as JetBlue or Alaska Airlines.
Under that model, international services would probably be scrapped.
The X factor in any deal is what the federal government may allow.
After the collapse of the two Compass Airlines in the early 90s the government made sweeping changes to the airline system which resulted in government-owned Qantas and Australian Airlines being merged and floated and Ansett being allowed to fly international routes.
Also, Air New Zealand was permitted to fly on Australian domestic routes, reciprocating what the kiwis allowed for some years.
However, at the last minute, Australia reneged on that deal.
Those merger changes, the last-minute change of heart with the kiwis, plus a later decision to allow foreign-owned airlines – Virgin Blue – to operate in Australia led to the demise of Ansett in 2001.
Investor groups buying into a restructured Virgin Australia will be looking for concessions from government and the scope and nature of those will play a role in shaping what the airline will look like.
Would it allow Singapore Airlines or Air New Zealand to fly domestically with some of their own crews on the proviso that the Virgin staff are also part of the deal?
Could we enter a new era of an Australia / New Zealand / Singapore single market?
The value in Virgin is its staff, product and brand which are amongst the world best.
An answer to those questions is probably a month away.
Boeing and Airbus are both battling severe liquidity headwinds with the US plane-maker chasing a multi-billion-dollar bond issue, with investment banks, to keep it flying as moves to cull 10 per cent of its workforce.
Across the Atlantic, its arch-rival Airbus is warning of the “gravest crisis the aerospace industry has ever known.”
The gravity is illustrated by the leap in stored aircraft from 1,851 in December to 13,981 today.
Boeing is lining up banks to market a potential offering of US$10B or more if market conditions are favourable.
It is also considering applying to the US Treasury under the US$17B program for companies critical to national security.
New York aviation analysts Bernstein says however that it does not “believe that either Boeing or Airbus is headed for a critical liquidity situation unless the coronavirus crisis extends substantially into next year.”
It adds that Boeing was already in significant pain over the grounding of the MAX but benefits from over US$3 billion a year in cash from its defence businesses.
Bernstein says that despite the MAX crisis Boeing started the year “with US$9.5 billion in cash on its balance sheet but has since raised debt to add US$13.8 billion and has a US$9.6 billion revolver that is untapped.”
“It also cancelled its dividend that would have been over US$4 billion and has now cancelled the (merger with) Brazil-based Embraer, a deal worth US$4.2 billion.
Bernstein said that it expects Boeing’s free cash flow to be negative US$15 billion for 2020.
“While this is all substantial, we still expect the company to have adequate cash to make it through.”
Boeing’s backlog is 5049 aircraft but it suffered 379 cancellations this year.
Airbus’ situation is different and while it has access to €30 billion in liquidity, the main issue will be its ability to flex employment levels says, Bernstein.
“We are not expecting Airbus to hit a critical point, despite warnings from management.”
Yesterday Airbus Chief Executive Officer Guillaume Faury said at the company’s 1st quarter earnings call that it is “implementing a number of measures to ensure the future of Airbus.”
These include bolstering available liquidity, adapting production rates, concentrating on cash containment and its longer-term cost structure to ensure it can return to normal operations once the situation improves.
Airbus backlog is 7,650 aircraft.
The upside for both giants is that many of their major customers, like Emirates, are being funded by governments.
Australians and Kiwis have chosen Air New Zealand as their most trusted, respected and admired company.
The airline said that “quiet skies haven’t stopped Aussies sharing their love for the Kiwi airline, making it four consecutive years Air New Zealand has topped The RepTrak Company’s annual reputation ranking in Australia.
Air New Zealand has also claimed the top position at home, pipping Toyota New Zealand, The Warehouse and KiwiBank in RepTrak’s New Zealand ranking.
In ranking first in both Australia and New Zealand, Air New Zealand has continued to outperform on reputation pillars such as innovation, citizenship, products and performance.
Air New Zealand Chief Marketing and Customer Officer Mike Tod says the news is heartening as the airline faces the most disruptive period in its 80-year history.
“This award belongs to our hardworking people, who despite deep uncertainty about the future, continue to represent our nation and airline with pride, serving our customers with outstanding dedication.
“Our Aussie connection began 80 years ago, when we took our first flight to Sydney’s Rose Bay on 30 April 1940. Australia is Air New Zealand’s largest international market and before COVID-19, at peak times we operated around 375 flights a week across the Tasman.
“While we’re down to a handful of international services and a fraction of our domestic flying for essential travel and cargo, we’ve been overwhelmed by messages of support and care from customers. Thank you Australia, and New Zealand, for continuing to put your faith in us. Our Air New Zealand family can’t wait to welcome you onboard again, when we can.”
Chief Executive Officer for The RepTrak Company Kylie Wright-Ford says the high esteem in which Australians and New Zealanders hold Air New Zealand will stand the airline in good stead as it continues to navigate the ongoing COVID-19 disruption.
“In times of crisis and uncertainty, having a consistently excellent reputation – as Air New Zealand does – is invaluable. Based on more than 20 years of providing data and actionable insights to companies globally we know people will continue to support companies that have stronger reputations.”
Further commentary on the RepTrak Australia and New Zealand rankings is available here.
Emirates has ramped up its capability to process refunds, reaffirming its commitment to customers and travel trade partners impacted by travel disruptions caused by the COVID-19 pandemic.
With nearly half a million refund requests pending to manage, the airline has taken proactive steps to restructure its backend procedures and boost resourcing to accelerate the processing of refunds.
Putting this in perspective pre-pandemic, Emirates processed an average of 35,000 refund requests in a month but now it is gearing up to handle 150,000 per month and aims to clear its current backlog by early August.
Sir Tim Clark, President Emirates Airline said: “It is a difficult time for us, as it is for all airlines. We are dipping into our cash reserves by being proactive in processing refunds, but it is our duty and responsibility. We would like to assure our customers and trade partners that we will honour refunds, and that we are doing our best to speed things up.
Sir Tim Clark
“The situation was dynamic in the early weeks of the pandemic, but we have since re-written our COVID-19 waiver policy into a simple, globally-applied approach that puts customers first. We’ve also proactively contacted those of our customers who had submitted earlier requests for refunds or booking changes, to let them know of the new options available to them.
“We sincerely hope that our customers and trade partners will choose to book and fly with Emirates again at a later time. For those who have opted to hold their tickets or exchange it for travel vouchers, we look forward to welcoming you on our flights again soon. Announcements will be made whenever we are able to resume services.”
Customers who wish to request travel vouchers or refunds can easily do so via an online form on Emirates’ website or contact their travel booking agent for assistance.
Emirates offers three options to its customers affected by flight cancellations and travel restrictions:
Simply keep their existing ticket for up to 24 months, and call to reschedule their flight when they are ready to fly. Emirates has extended this option to apply to any ticket booked on or before 30 June 2020, for travel on or before 30 November 2020.
Exchange the unused portion of their tickets for a travel voucher equivalent to the amount paid for their original booking. The travel voucher can be utilised for any Emirates product or service, with no change fees, providing customers more flexibility to reschedule when they are ready to travel again.
Refunds. Customers who have opted to keep their ticket or opted for a travel voucher can still apply for a refund if they are unable to travel. There will be no refund penalties.
Customers who have booked through travel agents should contact their agent for assistance where the same options will apply.
More information on Emirates’ waiver policy and its latest flight and business information relating to COVID-19 can be found here:
“Lockdowns, isolation and security measures across the world for over a month now. Global society came to a total standstill after the uncontrolled outbreak of this strange and new virus.
“Deserted streets, empty airspaces, entire populations locked in their homes and a gigantic economic crash that leaves us with more questions than answers.
“Flying as a long-range cargo pilot I appreciate my flights even more than before as passenger flights have been grounded overnight. Entire fleets parked indefinitely, tens of thousands of airline employees discharged or furloughed.
“And yet here I am skimming through the stratosphere, one of the very few and fortunate ones to keep on flying. Armed with masks, gloves and disinfectant gels we continue to provide medical supplies, food, toilet paper and other essential goods by airbridge across oceans and continents.
Christiaan van Heijst
“The clouds, the calming blue ocean, the glow of Earth’s atmosphere slowly blending into the infinite void of space. Well, technically space is not looking entirely empty this time: the moon rises on schedule. As she did undisturbed for billions of years and will continue to do so for many more.
“In a way, it is reassuring to see that the universe really keeps ongoing, with or without lockdown and virus: clouds form, grow and dissipate. Meteors trail across the stars and aurora dances vividly in the midnight sky.
No matter how bleak or depressing life may seem to many of us right now, try to keep in mind that we will get through all of this eventually. Just like the moon evolves through her phases and hides again in shadows, only to start her silent show of light and darkness all over again.
“Hold on and keep strong. We’re in it together (with some distance please) and perhaps we’ll gain an unprecedented sense of harmony and a much-needed sense of actual vulnerability instead of the vague gloom we have been hearing for so long.
“Have a nice weekend and stay safe!
“And if you can’t sleep at night; open the curtains and look up to those twinkling stars. You might even see a solitary silver bird up there, glimmering by the spell of moonlight.
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