about as bad as we feared. maybe worse.tealgroup.com/images/tgctoc/covid_civil_091720.pdf · 2013...
TRANSCRIPT
Richard AboulafiaVice President, AnalysisTeal Group Corporation
www.tealgroup.com
Fifth Update; September 17, 2020
About As Bad As We Feared. Maybe Worse.
Aviation Segments By Damage
Most to LeastAnnotated, Six Months In
International traffic hit hardest and longest.Already an overcapacity situation.Secular shift towards single aisles already underway.It’s just that bad.
Twin aisle jetliners
Fuel prices a big problem.
China comeback uncertain.
Some relief due to deferred Airbus ramp, and MAX stop.
Same.
Single aisle jetliners
Large cabin strongly correlated with oil prices.
Small/medium strongly correlated with corporate profits, equities indices.
Might recover quickly; still a 2020/21 downturn
Business Jets
Oil and gas segment (large) hit again, before recovery even began.
About right…wait and see.
Civil Rotorcraft
Emphasis on “shovel-ready.”
Advance development programs at greater risk.
Pure-play contractors in best shape; suppliers with most defense in best shape.
All good. In fact, better.
Military Programs
Aircraft Markets, In Good And Bad Years
World New Deliveries CAGR CAGR CAGR Change
In 2019 (2020 $) ’03-‘08 ’08-‘14 ’14-18 ’18-‘19
Jetliners-SA ($46.2 b) 9.7% 6.9% 5.0% -23.9%
Jetliners-TA ($55.3 b) 5.0% 13.5% 1.7% 2.0%
Regionals ($5.8 b) 3.9% -3.1% -5.2% -5.1%
Business Aircraft ($22.4 b) 16.7% -2.2% -5.0% 15.6%
Civil Rotorcraft ($3.9 b) 18.5% -2.5% -7.4% -6.6%
Military Rotorcraft($13.3 b) 10.6% 9.6% -11.8% 16.9%
Military Transports ($4.9 b) 3.2% -0.9% 0.2% -1.2%
Fighters ($24 b) 1.6% 0.8% 2.5% 25.5%
All Civil ($133.8 b) 9.7% 5.6% 1.4% -7.6%
All Military ($45.5 b) 3.9% 4.0% -3.3% 16.6%
Total ($179.3 b) 8.0% 5.2% 0.3% -2.4%
-100
-80
-60
-40
-20
0
20
40
Y/T
Tra
ffic
Ch
na
ge
(%
)Traffic: Like Nothing We've Ever Seen Before
63% Decline in 2020?2019 Totals: RPKs 4.2%, ASKs 3.4%, FTKs -3.3%
2018 Totals: RPKs 6.5%, FTKs 5.4%; 2017: RPKs 7.6%, FTKs 9%
RPKs ASKs FTKsSource: IATA
More Unprecedented Numbers•Traffic decline, parked fleet like no previous shock.
• Per Paul Krugman, reflect a world economy in a “medically-induced coma.”
• Traffic recovery is determined by the virus, not politicians or economics.
• Back to peak in late 2023.
• Backlogs holding up (MAX a concern), but meaningless in a downturn.• Just 1% of January backlog has cancelled; nearly half deferred.
•Many early retirements coming, particularly twin aisles.• Primarily twin aisles; A380 bloodbath.
• Aftermarket catastrophe.
IATA’s 63% y/y
2020 decline
still optimistic
about a 4Q
recovery0
1000
2000
3000
4000
5000
6000
World Air Traffic (RPM Bns)
0
2000
4000
6000
8000
10000
12000
14000
16000
0%
10%
20%
30%
40%
50%
60%
70%
Park
ed
Jets
Perc
en
t P
ark
ed
World Jet Fleet: Now ~33% Unemployed
Parked Percentage Of Total Fleet
Two Metrics To WatchOne Crisis May Be Peaking; The Next Might Be
Starting
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
BRIC Deliveries: Peaked; Watch ChinaGrowth May Not Resume For A Few Years
China Russia India Brazil
2018:
China is
23% of
world
Market
2000:
China is
2% of
world
Market
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
Large Jetliner Orders And DeliveriesBook-To-Bill No Longer A Thing
Deliveries Net Orders
-
10
20
30
40
50
60
70
80
90
Deli
ve
rie
s In
20
20
$ B
illi
on
sThe Air Transport Market By Segment
Regionals Single Aisles Twin Aisles
Return to peak:
2024
Now With Greater Misery
Too much, too sudden (A330s,
777s, 787s, Gulf carriers, etc.)
Hit Hardest and Longest; Capacity
hangover, international traffic
problems, and shift towards single
aisles
737MAX
Problem, and
flood;
includes
delivery of
~450 already-
built jets
Return to peak:
after 2029...
probably
1h1997
1h2001
End2004
End2006
End2008
End2009
End2010
End2011
End2012
End2013
End2014
End2015
End2016
End2017
End2018
End2019
1H2020
Boeing 130.0 107.8 79.5 199.1 300.4 271.1 270.0 300.1 317.0 365.3 421.2 412.9 398.9 402.1 408.0 378.8 356.5
Airbus 48.6 112.9 115.5 173.0 281.8 268.2 277.6 309.5 321.6 399.9 439.9 461.2 468.1 441.8 481.6 463.6 465.1
Bombardier — — — — — 1.9 3.3 4.9 5.5 6.7 9.0 9.0 8.7 8.5 — — —
0
50
100
150
200
250
300
350
400
450
500
20
20
$B
illi
on
sFirm Order Backlog Values (July 1):
Boeing Taking A Hit
Jetliner Types And Fleets Trends And Themes
• Downsizing trend: demand for jets offering equivalent functionality and equal/better economics, fewer seats, than older models.• Thus, A321neo will do well as replacement for older, mid-range twin aisles; A220
will do well as replacement for older 737s and A319/320s.
• Boeing single aisle product line now boxed in; MAX8 fine, but outflanked from above and below.• A321neo increasingly dominant in 180/220-seat segment; CDB MAX10 order
conversion further indication that larger MAXs uncompetitive.
• Embraer JV termination means Boeing abandoning 100/130-seat segment.
• BA 25% R&D cut announced in 1Q call not a good sign for product development.
• MAX8 lease rates, orders (particularly lessor orders) also taking a hit.
• Boeing, in short, is therefore at risk of losing out due to airline downsizing.
• E-Jets will lose market share and/or profit without a large partner against A220, but E175 might control its segment.
• A330neo increasingly at risk of MD-11-like fate.
• Almost all remaining quadjet fleets look set to retire young (1/3 of 380 fleet so far).
• Large twins (777X, A350-1000) look marginal for most of decade.
0
500
1000
1500
2000
2500
3000
3500
4000
<150 Single aisle 150 Single aisle 200 Single Aisle 250-300 Twin aisle >300 Twin aisle
Airbus, Boeing Jetliner Backlogs (July 1)
Boeing Airbus
No Clear Relationship Between US Defense Spending, Economy
0
5
10
15
20
25
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29
Deli
ve
rie
s in
20
20
$ B
illi
on
sUS Military Fixed Wing Aircraft Deliveries
C-17 AV-8B F/A-18 F-15 F-16 F-22 T-45 T-6 C-130 F-35 T-7 B-21
The Last
Jetliner
Downturn
Global Aircraft Market Outlook In One Page
Segment 2020 ’20-‘21 Risk Elevator Comment
Jetliners-SA -41.3% 55.0%Includes some already-built MAXs. Watch
China, fuel, traffic.
Jetliners-TA -47.2% -7.2%Overcapacity, slow international recovery,
secular shift to SAs
Regionals -27.0% -2.5%No Boeing supply chain effect on E-2; Scope
clause de-risked, but little growth.
Business Aircraft -20.3% -8.9%Another hit after many false starts over a
disappointing decade.
Civil Rotorcraft -11.4% -6.2%Large civil hit again. Too many new models
aimed at a weak segment (oil/gas).
Military Rotorcraft -5.2% 2.6%Programs end/slow; no risk of accelerated
downturn; FVL beyond forecast, exc FARA.
Military Transports -29.5% 4.7% A seriously underperforming market.
Fighters -22.0% 46.0%I like this market. F-35 (after COVID
disruption), plus strong Gen 4.5
All Civil -38.7% 13.3%SAJetliner snapback due to MAX, weakness
in other segments; more overcapacity risk.
All Military -17.4% 23.5%Global insecurity, Tension, Malice. Special
mission also boosts topline.
Total Industry -33.3% 16.6% No strong recovery until 2024
$0 $50 $100 $150 $200 $250 $300 $350
Airbus A320/Neo
Boeing 737NG/MAX
Lockheed Martin F-35
Boeing 787
Airbus A350XWB
Boeing 777/X
Airbus A220
Boeing 767/KC-46
Gulfstream 650/700
Gulfstream 500/600
Embraer E-Jets
Airbus A330/Neo
Boeing AH-64
BBD Global 7500
Sikorsky H-60
Su-30/57
BBD Glob. 5/6500
Boeing FA-18
ATR42/72
Lockheed C-130
Top 20 Aviation Programs; Volume MattersCumulative Deliveries Value in '20 $ Bns
2020-2029 2010-2019
Top 5 are 54% of total; next 15
are 22%; remaining 100+ are
24%
0
20
40
60
80
100
120
140
160
20
20
$ B
illi
on
sWorld Aircraft Deliveries By Value, 1989-2029
Military Civil (January) Civil (September)
Concluding Observations, and a Few Consolations
•This situation might get worse.
•This is a synthetic market, not an organic one.
•Deliveries mostly driven by exogenous factors: government aid, third-party and first party finance. These may not hold.
•Boeing faces a very serious mid market challenge.
•Defense companies have an opportunity to grow their civil side. Will they?
•There is some good news:
•An airline paradise, except for the traffic.
• Fuel, Jet costs, Crew costs, interest rates, government support
(for most, and for now); Stimulate traffic, or restore profit?
•Defense: budgets, export demand, industrial support.
•Less business jet frothiness.
•Financial sector stronger going into this crisis.
COVID-19 And Civil Aviation Markets
For more information about Teal Group:
www.tealgroup.com
Tom Zoretich
Senior Economist