The Plight of the Aviation Sector Continues Unabated- Ryanair, EasyJet And Melrose In Focus

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The Plight of the Aviation Sector Continues Unabated- Ryanair, EasyJet And Melrose In Focus

 The Plight of the Aviation Sector Continues Unabated- Ryanair, EasyJet And Melrose In Focus

Summary

  • Most of the British Aviation companies are reporting slow resumption of operations as the restriction on international air travel continue to be imposed in several parts of the world.
  • The situation today has not improved much as the infection continues to spread
  • The very slow uptake of business activity in the sector signifies that thousand are at risk of becoming unemployed after the withdrawal of the furloughing scheme.

The bounce-back situation with British Aviation as well as the aerospace industries looks far from being normal in the near term. While the Aviation sector, on the one hand, is suffering on account of continuing customer reluctance to fly, for fear of catching the infection, on the other the regular government restrictions and safety measures are making it very difficult for the airlines to scale back their operations rapidly. As a result, the situation with the aerospace companies has also become very challenging, who depend a lot on the aviation sector for their revenues. With most of the aeroplanes grounded the maintenance and repairs works has also dried out leading to the idling of machines and manpower. Both of these industries employ a significant amount of unskilled, semi-skilled and highly- skilled manpower, who now are at an enhanced risk of losing their jobs as the government folds its furloughing scheme.

How has the ecosystem in the aviation and aerospace sector been affected by the pandemic?

The coronavirus pandemic is highly dependent on human vectors. An infected person spreads the virus through his respiratory droplets to people who come in close contact with him. The aviation sector, which is used for taking people from the part of the world within a very short period of time inadvertently became a medium for the rapid spread of the pandemic. Thus, it was not surprising that the authorities across the world first sought to restrain international and then domestic air travel to contain the spread of the virus, leading to massive losses to the industry. The situation today has not improved much on that front, as the infection continues to spread, and the full opening of the aviation sector could result in a sharp spike in the infection rates.

The ecosystem for the aerospace companies is a little better, as they continue to service military aviation equipment which brought them some revenue, though not enough to make their businesses sustainable.

What costs does industry needs to bear despite negligible business?

Paying the salaries of their staff is not the only cost these two industries continue to bear as their businesses still to recover, aeroplanes while they are not flying, also continue to incur high costs just to upkeep. These costs, unlike the maintenance costs of a car or any other motor vehicle, are not very cheap and can run into millions and also require specialised staff to perform. After the lockdown was opened, several airlines started to fly with very few passengers, just to cover these costs and keep the planes in flying condition to avoid many of these costs associated with storage of aircraft and bringing them back to active service.

The Current status of few British Airline and aerospace companies post reopening of lockdown.

  1. Ryanair Holdings Plc – (RYA: LON) - The company is one of the best-positioned ones to have enough cash reserves to ride out the pandemic impact. The company has recently refused to take delivery of new A320's it had ordered in order to save cash and is also taking other austerity measures. The CEO of the company Michael O' Leary in a recent interview stated that he believes that the future of his company is bright, and he is currently negotiating with major aircraft manufacturers for cheaper deals. The Airline, though has already announced laying off of at least 3,000 of its staff members.
  2. EasyJet – (EZJ: LON) – EasyJet Plc also got into financial trouble because of the grounding of its entire fleet because of the lockdown. The company has since availed of £400 million in loans and is planning to sell off its aircraft to keep itself ticking, while it navigates through the pandemic.

The company has recently announced that it will make a parallel landing with Lufthansa in the initiation of the new Berlin airport with the new designator BER.

  1. Melrose- (MEL: LON) – Melrose Plc has recently announced a cut in its workforce at its KGN aerospace division after the company reported a loss in its half-yearly results. Melrose had bought KGN aerospace in 2018, which has this year reported a sales shortfall of 18 per cent this year compared to last year.

How long will it take for the improvement in the situation of the industry?

The aviation industry will be able to come out of this slump once the restriction on flying and the quarantine and other safety measures are fully withdrawn. The air travellers also need to feel safe that they would not get sick by flying and pass on the sickness to their family members before they start flying. The government has taken certain measures like opening air corridors with many countries which allow people to travel for business and pleasure without being subject to quarantine measures, but it is not sufficient and is unable to bring sustainable business. The vaccination drive, which is about to begin in some time in the country, could very well increase the pace of recovery. Once most of the population in the country receive the vaccine, the infection levels will go down, and everybody will feel safe to join back at their workplaces.

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