When the doors closed on 2018, financial forecasts predicted the aviation industry would have a profit of $34 billion for 2019. As it turns out, the actual profit for 2019 fell below that of 2018 which was $24 billion. 2019 could actually use the example of the perfect storm from the movie of the same name where a fishing boat was swallowed up by the convergence of three major storms. This post will break down the cascading financial problems that plagued 2019.
Aircraft Programs
2019 was a litany of failures for the major aircraft manufactures with Boeing having the majority of issues last year.
BOEING 737 MAX PROGRAM
This program is still at a standstill pending recertification from aircraft regulators around the globe.
- Lyon Air flight 610 with 189 fatalities. This crash actually occurred on October 29, 2018 but it contributed to the aircraft grounding worldwide.
- Ethiopian Airlines flight 32 with 157 fatalities on March 10, 2019.
- The FAA joins other worldwide aircraft regulators in grounding all Boeing 737 MAX operations on March 13, 2019.
- Boeing announces suspension of the 737 MAX manufacturing on December 16, 2019.
This grounding continues pending worldwide recertification of the revised MCAS software along with the development of pilot training for MCAS. You can read my previous 737 MAX posts:
- Should the Boeing 737 MAX Ever Return to Service? Will it be Safe?
- Boeing Suspends 737 MAX Production Pending FAA Approval.
BOEING 747-8 PROGRAM
Boeing received no new orders for the 747-8. This program suffers from the same problems as the Airbus A 380 which is the Very Large Aircraft (VLA) class of aircraft powered by four engines is dead. Boeing has 17 747-8F freights left to complete.
BOEING 777X PROGRAM
The Boeing 777X program is what I call the “super twin” class of aircraft transporting 400 passengers with just two engines. The “super twin” class of aircraft has induced the death of the VLA, four-engine airliners as cost-inefficient. Boeing has three models in the class –
- Boeing 777-8, the longest range 777X with two-class seating for 384. This aircraft and the Boeing entry for the Qantas Project Sunrise.
- Boeing 777-9, the middle-size 777X with two-class seating for 426.
- Boeing 777-10, the longest 777X with two-class seating for 450.
The 777X programs have been hit with multiple setbacks:
- The new GE9X engines for all variants suffered compressor issues on May 29, 2019. GE worked on fixes to the compressor pushing back the 777X maiden flights to 2020.
- Boeing announces on August 14, 2019 that it was suspending development work on the 777-8 program while it works to fix other problems.
- The 777-9 fails fuselage static pressure testing on September 5, 2019 when a cargo door failed.
On December 19, 2019, Qantas announced that they will go with the Airbus A 350-1000 for the project sunrise aircraft.
BOEING 787 PROGRAM
This program is plagued by issues of:
- Production mistakes.
- Inconsistent quality issues
- Poor management oversight
- The effort to prioritize delivery schedule over quality.
These issues have triggered an investigation by the U. S. Department of Justice.
AIRBUS A 380 PROGRAM
On February 14, 2019, Airbus announced the cancellation of the A 380 program. This aircraft essentially suffered the same fate as the Boeing 747 – the VLA program is dead. With no new orders and the reluctance of Airbus and engine manufactures to upgrade the A 380 engines, signaled the end of the line. The total number of orders over the life of the programs was only 251 aircraft which is far from Airbus recovering the R & D costs for the program. Airlines canceled some outstanding aircraft orders and the first A-380 was scrapped in 2019.
Airline Bankruptcies
This was a horrible year for airlines to stay in business. 2019 saw 31 airlines calling it quits. Here are the five largest airline bankruptcies for 2019:
- Thomas Cook on September 23, 2019,
- Jet Airways on April 17, 2019,
- WOW on March 28, 2019,
- Aigle Azur on September 27, 2019,
- Adria Airways on September 30, 2019.
The bankruptcy of Thomas Cook Airlines was particularly large because it also covered one of the oldest travel agencies in the world, Thomas Cook Travel. In addition to airlines that have ceased operations, there have been many route cutbacks by the remaining airlines.
Fuel Costs
The price of jet fuel in 2019 was higher than in 2018. Fuel represents the second-highest operating cost for airlines.
Worldwide Economy
The Airline industry is extremely volatile and if there is anything that worries airlines, that is economic uncertainty. Even though North America generates 65% of the airline income and the U. S. economy is doing well, that can’t be said about the rest of the world. Adding to the uncertainty is the effect of Brexit when that happens. One of the reasons for the failure of Thomas Cook was that U.K. citizens had cut back their travel due to economic uncertainty in the U.K. due to Brexit. Trade wars mainly involving the United States is also driving a trend of trade uncertainty.
Civil Unrest and Strikes
Civil tensions in countries have a large impact on the aviation industry. The collapse of Venezuela and civil unrest in Hong Kong were big in 2019. Hong Kong is a major hub for flight in and out of Asia.
There were significant strikes in 2019, most notably the pilot strike actions at British Airways and the air controllers strike in France.
Flight Shaming
A new disease popped up in 2019, flight shaming. This phenomenon is mainly confined to environmentally sensitive countries in the European Union (EU). The purpose of flight shaming is to have travelers take more environmentally transportation like the train. It could translate to an emissions tax on jet fuel in the EU which would put those airline operations at a disadvantage to other carriers’ operations.
What Richard Branson of Virgin Atlantic Said
Some time ago, Richard Branson was in a question and answer session when he was asked this question:
Question – “Richard, what is the fastest way to become a millionaire?”
Answer – “Start as a billionaire and open an airline.”
Final Thoughts
Last year was a horrible year for aviation. I don’t see how 2020 can look worse and a lot will depend on how and when the Boeing 737 MAX returns to service and whether people will trust the 737 MAX. Hopefully, the price of jet fuel will remain static but the uncertainty of the world-wide economy still presents a problem. Airlines hate economic uncertainty.
