As concerns grow across the globe for Coronavirus (COVID-19), GKR looks at its impact on the aircraft leasing industry.
Since its initial arrival, COVID-19 has become a significant international concern. Globally, an average of 4 billion people travel with airlines meaning any potential human spread virus is a cause for concern for airports, airlines and lessors. Over the past three weeks, our aircraft leasing team has been in contact with our clients and candidates, to try and understand the potential reach, risk and impact the virus will have on the industry.
Commercial airlines are perhaps the most affected within the industry. Most airlines have ceased flying into mainland China and the originating city of Wuhan. Major airlines such as Delta, American Airlines, Air France, British Airways and Emirates have suspended their services to a number of areas and regions in response to the virus and over health concerns for their staff and their passengers. As China is the fastest-growing market for air travel, a cease in operations will have a huge impact on the economy and on the airlines.
Cathay Pacific in Hong Kong has asked their crews to take unpaid leave in order to manage their costs. The airline has been blocked from flying into a number of international destinations due to fears of the virus spreading. COVID-19 has proved to be another crisis for Hong Kong after the unrest from last year.
The impact on airlines who currently operate leased aircraft has a direct impact on the lessors with exposure to China. Airlines are facing significant financial pressure and the revenue may not be available to pay for leases as cancellations continue. A number of lessors are putting in place agreements to help Chinese customers as many are in negative cashflow positions as airlines are having to refund customers so they are being offered abatements. Further bankruptcies are inevitable which will result in the need for lessors to retain their more experienced people to deal with the impact of the situation.
After speaking with a number of our contacts in China and Hong Kong the impact on the aircraft leasing industry is dramatic. The majority of people in the industry have either been working from home or have temporarily relocated from China. From a recruitment perspective, candidates who are not based in the region are hesitant to move into it and we have seen an increase in demand from people looking to relocate from China and Hong Kong. Some of the Chinese aircraft lessors are continuing their recruitment processes in their international offices but there is a hold on hiring or expansion in Chinese offices.
The virus has also had significant implications for aircraft manufacturers. With China being the fastest-growing airline market, there are now some question marks over Chinese airlines aircraft orders. Boeing, who is already struggling after the grounding of its 737 MAX jet, had expected air freight to increase 1 – 2% this year, however, the pressure on the industry may threaten this. According to Boeing’s SVP Commercial Sales and Marketing Ihssane Mounir, the manufacturer has already delayed some of its aircraft deliveries into China due to the virus and Boeing is expecting airline revenues to suffer as a result of the travel restrictions to and from the region.
The Singapore Airshow which usually attracts hundreds of airlines and aviation finance industry professionals saw a significant decrease in attendees with 70 exhibitors pulling out of the show, including 10 Chinese companies that had to withdraw after Singapore imposed a ban on people traveling from China. The latest reports show that there are not a lot of new cases being discovered globally so the hope is that the virus is being contained.
Over the coming weeks, our aircraft leasing team covering the APAC region and bring any significant updates.